Democracy, rule of law, corruption incentives and growth
AbstractWe 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 income growth are determined simultaneously and show that income growth is more affected by our proxies for legal and political institutions in countries where political rights and judicial institutions respectively are limited.
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Bibliographic InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2008035.
Date of creation: 01 Jun 2008
Date of revision:
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economic growth; corruption; rule of law; incentive constraint; political power;
Other versions of this item:
- David De La Croix & Clara Delavallade, 2011. "Democracy, Rule of Law, Corruption Incentives, and Growth," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 13(2), pages 155-187, 04.
- de la CROIX, David & DELAVALLADE, Clara, . "Democracy, rule of law, corruption incentives, and growth," CORE Discussion Papers RP -2347, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- David, DE LA CROIX & Clara, DELAVALLADE, 2008. "Democracy, rule of law, corruption incentives and growth," Discussion Papers (ECON - DÃ©partement des Sciences Economiques) 2008024, Université catholique de Louvain, Département des Sciences Economiques.
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
- H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
- D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-11-25 (All new papers)
- NEP-DEV-2008-11-25 (Development)
- NEP-POL-2008-11-25 (Positive Political Economics)
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