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Instability And The Incentives For Corruption

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  • FILIPE R. CAMPANTE
  • DAVIN CHOR
  • QUOC-ANH DO

Abstract

We investigate the relationship between corruption and political stability, from both theoretical and empirical perspectives. We propose a model of incumbent behavior that features the interplay of two effects: a horizon effect, whereby greater instability leads the incumbent to embezzle more during his short window of opportunity, and a demand effect, by which the private sector is more willing to bribe stable incumbents. The horizon effect dominates at low levels of stability, because firms are unwilling to pay high bribes and unstable incumbents have strong incentives to embezzle, whereas the demand effect gains salience in more stable regimes. Together, these two effects generate a non-monotonic, U-shaped relationship between total corruption and stability. On the empirical side, we find a robust U-shaped pattern between country indices of corruption perception and various measures of incumbent stability, including historically observed average tenures of chief executives and governing parties: regimes that are very stable or very unstable display higher levels of corruption when compared with those in an intermediate range of stability. These results suggest that minimizing corruption may require an electoral system that features some re-election incentives, but with an eventual term limit. Copyright 2009 The Authors. Journal compilation 2009 Blackwell Publishing Ltd.

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Bibliographic Info

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

Volume (Year): 21 (2009)
Issue (Month): 1 (03)
Pages: 42-92

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Handle: RePEc:bla:ecopol:v:21:y:2009:i:1:p:42-92

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References

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  1. Finan, Frederico & Ferraz, Claudio, 2005. "Reelection Incentives and Political Corruption: Evidence from Brazilian Audit Reports," 2005 Annual meeting, July 24-27, Providence, RI 19544, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  2. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
  3. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
  4. Fredriksson, Per G. & Svensson, Jakob, 2003. "Political instability, corruption and policy formation: the case of environmental policy," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1383-1405, August.
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Cited by:
  1. Chamon, Marcos & de Mello, João M. P. & Firpo, Sergio, 2009. "Electoral Rules, Political Competition and Fiscal Expenditures: Regression Discontinuity Evidence from Brazilian Municipalities," IZA Discussion Papers 4658, Institute for the Study of Labor (IZA).
  2. Matei, Ani, 2006. "Corruption, Transparency and Quality.Comparative Approaches and Judiciary Support," MPRA Paper 19954, University Library of Munich, Germany, revised 20 Dec 2009.
  3. Filipe R. Campante & Quoc-Anh Do, 2009. "A Centered Index of Spatial Concentration: Axiomatic Approach with an Application to Population and Capital Cities," Working Papers 02-2009, Singapore Management University, School of Economics.
  4. Filipe R. Campante & Davin Chor, 2012. "The People Want the Fall of the Regime": Schooling, Political Protest, and the Economy," Working Papers 08-2012, Singapore Management University, School of Economics.
  5. Quoc-Anh Do & Filipe R. Campante, 2009. "Keeping Dictators Honest: the Role of Population Concentration," Working Papers 01-2009, Singapore Management University, School of Economics.
  6. Ferraz, Claudio & Finan, Frederico S., 2007. "Electoral Accountability and Corruption in Local Governments: Evidence from Audit Reports," IZA Discussion Papers 2843, Institute for the Study of Labor (IZA).
  7. Jung Hur & Rasyad A. Parinduri & Yohanes E. Riyanto, 2007. "Cross-Border M&A Inflows and the Quality of Institutions: A Cross-Country Panel Data Analysis," SCAPE Policy Research Working Paper Series 0708, National University of Singapore, Department of Economics, SCAPE.
  8. Marcos Chamon & João Manoel Pinho de Mello & Sergio Firpo, 2008. "Electoral rules, political competition and fiscal spending : regression discontinuity evidence from Brazilian municipalities," Textos para discussão 559, Department of Economics PUC-Rio (Brazil).
  9. Coviello, Decio & Gagliarducci, Stefano, 2010. "Building Political Collusion: Evidence from Procurement Auctions," IZA Discussion Papers 4939, Institute for the Study of Labor (IZA).
  10. Noel Johnson & Courtney LaFountain & Steven Yamarik, 2011. "Corruption is bad for growth (even in the United States)," Public Choice, Springer, vol. 147(3), pages 377-393, June.
  11. Quoc-Anh Doy & Filipe R. Campante, 2009. "Keeping Dictators Honest : the Role of Population Concentration," Governance Working Papers 22076, East Asian Bureau of Economic Research.
  12. Claudio Ferraz & Frederico Finan, 2009. "Electoral Accountability and Corruption: Evidence from the Audits of Local Governments," NBER Working Papers 14937, National Bureau of Economic Research, Inc.
  13. Kanybek Nur-tegin & Hans J. Czap, 2012. "Corruption: Democracy, Autocracy, and Political Stability," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 42(1), pages 51-66, March.
  14. Matei, Ani & Matei, Lucica, 2010. "Anti-corruption strategies in some South-Eastern European states.An empirical study on the impact of the government performance," MPRA Paper 24741, University Library of Munich, Germany, revised 01 Sep 2010.
  15. Matei, Lucica, 2007. "Democracy and politics: Romanian mechanisms, realities and electoral developments," MPRA Paper 22440, University Library of Munich, Germany, revised 12 Apr 2010.

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