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Policy Compromises: Corruption And Regulation In A Democracy

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  • TOKE S. AIDT
  • JAYASRI DUTTA

Abstract

This paper evaluates the extent of regulation in a democracy with corruption. Elected politicians can restrict entry of firms in exchange for bribes from entrepreneurs. Full liberalization implies free entry and allocative efficiency. Voters re-elect politicians based on observed performance. We demonstrate that voters agree to tolerate corruption and inefficient regulation; that efficient policies can be promoted by productivity growth; that productivity growth reduces the cost of providing wage incentives; and that corruption is procyclical and economic policy is countercyclical in a corrupt democracy. Copyright 2008 The Authors. Journal compilation 2008 Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Economics & Politics.

Volume (Year): 20 (2008)
Issue (Month): 3 (November)
Pages: 335-360

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Handle: RePEc:bla:ecopol:v:20:y:2008:i:3:p:335-360

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Cited by:
  1. Aidt, T.S., 2009. "Corruption, Institutions and Economic Development," Cambridge Working Papers in Economics 0918, Faculty of Economics, University of Cambridge.
  2. Betty Agnani & Amaia Iza, 2005. "Growth in an oil abundant economy: The case of Venezuela," DEGIT Conference Papers c010_053, DEGIT, Dynamics, Economic Growth, and International Trade.
  3. Toke S. Aidt, 2011. "The Causes of Corruption," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 9(2), pages 15-19, 07.
  4. Campos, Nauro F & Estrin, Saul & Proto, Eugenio, 2010. "Corruption as a Barrier to Entry: Theory and Evidence," IZA Discussion Papers 5243, Institute for the Study of Labor (IZA).
  5. Donato De Rosa & Nishaal Gooroochurn & Holger Görg, 2010. "Corruption and Productivity Firm-level Evidence from the BEEPS Survey," Kiel Working Papers 1632, Kiel Institute for the World Economy.
  6. Michael Breen & Robert Gillanders, 2012. "Corruption, institutions and regulation," Economics of Governance, Springer, vol. 13(3), pages 263-285, September.
  7. Aidt, T.S. & Dutta, J., 2008. "A Theory of the Corrupt Keynesian," Cambridge Working Papers in Economics 0861, Faculty of Economics, University of Cambridge.
  8. Alexeev, Michael & Song, Yunah, 2013. "Corruption and product market competition: An empirical investigation," Journal of Development Economics, Elsevier, vol. 103(C), pages 154-166.

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