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Democracy, Rule of Law, Corruption Incentives, and Growth

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  • DAVID DE LA CROIX
  • CLARA DELAVALLADE

Abstract

We bridge the gap between the standard theory of growth and the mostly static theory of corruption. Some public investment can be diverted from its purpose by corrupt individuals. Voters determine the level of public investment subject to an incentive constraint equalizing the returns from productive and corrupt activities. We concentrate on two exogenous institutional parameters : the “technology of corruption” is the ease with which rent-seekers can capture a proportion of public spending. The “concentration of political power” is the extent to which rent-seekers have more political influence than other people. One theoretical prediction is that the effects of the two institutional parameters on income growth and equilibrium corruption are different according to the constraints that are binding at equilibrium. In particular, the effect of judicial quality on growth should be stronger when political power is concentrated. We estimate a system of equations where both corruption and incime growth are determined simultaneously and show that income growth is more affected by our proxies for legal and politiccal institutions in countries where political rights and judicial institutions respectively are limited.

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Bibliographic Info

Article provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.

Volume (Year): 13 (2011)
Issue (Month): 2 (04)
Pages: 155-187

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Handle: RePEc:bla:jpbect:v:13:y:2011:i:2:p:155-187

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  1. Ngo Long & Gerhard Sorger, 2006. "Insecure property rights and growth: the role of appropriation costs, wealth effects, and heterogeneity," Economic Theory, Springer, vol. 28(3), pages 513-529, 08.
  2. de la Croix,David & Michel,Philippe, 2002. "A Theory of Economic Growth," Cambridge Books, Cambridge University Press, number 9780521806428, December.
  3. Theo Eicher & Cecilia García-Peñalosa & Tanguy van Ypersele, 2009. "Education, Corruption and Constitutional Reform," Working Papers UWEC-2007-17-P, University of Washington, Department of Economics.
  4. Shone,Ronald, 2002. "Economic Dynamics," Cambridge Books, Cambridge University Press, number 9780521017039, December.
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  8. Stock, James H & Wright, Jonathan H & Yogo, Motohiro, 2002. "A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(4), pages 518-29, October.
  9. Beck, T.H.L. & Clarke, G. & Groff, A. & Keefer , P. & Walsh, P., 2001. "New tools in comparative political economy: The database of political institutions," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3125517, Tilburg University.
  10. Cuong Le Van & Mathilde Maurel, 2006. "Education, corruption and growth in developing countries," Cahiers de la Maison des Sciences Economiques v06080, Université Panthéon-Sorbonne (Paris 1).
  11. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert W., 1998. "Law and Finance," Scholarly Articles 3451310, Harvard University Department of Economics.
  12. Miriam A. Golden & Lucio Picci, 2005. "Proposal For A New Measure Of Corruption, Illustrated With Italian Data," Economics and Politics, Wiley Blackwell, vol. 17, pages 37-75, 03.
  13. Isaac Ehrlich & Francis T. Lui, 1999. "Bureaucratic Corruption and Endogenous Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 107(S6), pages S270-S293, December.
  14. McKenzie, Lionel W., 2005. "Optimal economic growth, turnpike theorems and comparative dynamics," Handbook of Mathematical Economics, in: K. J. Arrow & M.D. Intriligator (ed.), Handbook of Mathematical Economics, edition 2, volume 3, chapter 26, pages 1281-1355 Elsevier.
  15. Docquier, Frederic & Tarbalouti, Essaid, 2001. " Bribing Votes: A New Explanation to the "Inequality-Redistribution" Puzzle in LDCs," Public Choice, Springer, vol. 108(3-4), pages 259-72, September.
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Cited by:
  1. David De la Croix & Clara Delavallade, 2006. "Growth, public investment and corruption with failing institutions," Cahiers de la Maison des Sciences Economiques v06078a, Université Panthéon-Sorbonne (Paris 1).
  2. Panagiotis Arsenis & Dimitrios Varvarigos, 2011. "Corruption, Fertility, and Human Capital," Discussion Papers in Economics 11/28, Department of Economics, University of Leicester, revised Apr 2011.

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