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Instability and the Incentives for Corruption

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  • Campante, Filipe Robin
  • Chor, Davin
  • Do, Quoc-Anh

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.

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Bibliographic Info

Paper provided by Harvard Kennedy School of Government in its series Scholarly Articles with number 4778510.

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Date of creation: 2009
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Publication status: Published in Economics and Politics
Handle: RePEc:hrv:hksfac:4778510

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  1. John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, Springer, vol. 50(1), pages 5-25, January.
  2. Fredriksson, Per G. & Svensson, Jakob, 2003. "Political instability, corruption and policy formation: the case of environmental policy," Journal of Public Economics, Elsevier, Elsevier, vol. 87(7-8), pages 1383-1405, August.
  3. Finan, Frederico & Ferraz, Claudio, 2005. "Reelection Incentives and Political Corruption: Evidence from Brazilian Audit Reports," 2005 Annual meeting, July 24-27, Providence, RI, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) 19544, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  4. R Blundell & Steven Bond, . "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
  5. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, Elsevier, vol. 68(1), pages 29-51, July.
  6. 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.
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