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A Political Economy Explanation for In-kind Redistribution: The Interplay of Corruption and Democracy

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Author Info

  • Zohal Hessami

    ()
    (Department of Economics, University of Konstanz, Germany)

  • Claudio Thum

    ()
    (Center for Economic Studies, University of Munich, Germany)

  • Silke Uebelmesser

    ()
    (Department of Economics, University of Jena, Germany)

Abstract

This paper identifies a novel political-economy explanation for the observed variation in the cash and in-kind (basic health care, public housing or food stamps) mixture of social transfers. We put forward the hypothesis that the share of in-kind transfers is positively correlated with corruption in democratic countries. The argument is derived in a theoretical model which assumes that it is easier for politicians to appropriate cash transfers than in-kind transfers. Voters in corrupt countries know that cash transfers invite corrupt behavior and therefore they elect parties that opt for in-kind redistributive measures. The empirical analysis for 34 OECD countries over the 1984 – 2007 period provides robust evidence in favor of this hypothesis. Moreover, the positive correlation between the in-kind share of social transfers and perceived corruption is stronger for the “most democratic” OECD countries and in countries with specific institutional characteristics such as free media that further enhance democratic accountability.

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Bibliographic Info

Paper provided by Department of Economics, University of Konstanz in its series Working Paper Series of the Department of Economics, University of Konstanz with number 2012-25.

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Length: 31 pages
Date of creation: 19 Nov 2012
Date of revision:
Handle: RePEc:knz:dpteco:1225

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Keywords: In-kind social transfers; redistribution; corruption; democracy; social expenditures;

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  1. Bearse, P. & Glomm, G. & Janeba, E., 2000. "Why poor countries rely mostly on redistribution in-kind," Journal of Public Economics, Elsevier, vol. 75(3), pages 463-481, March.
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  5. Balestrino, Alessandro, 1999. " The Desirability of In-Kind Transfers in the Presence of Distortionary Taxes," Journal of Economic Surveys, Wiley Blackwell, vol. 13(4), pages 333-54, September.
  6. International Monetary Fund, 2000. "Corruption and Military Spending," IMF Working Papers 00/23, International Monetary Fund.
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  8. Hessami, Zohal, 2010. "Corruption and the Composition of Public Expenditures: Evidence from OECD Countries," MPRA Paper 25945, University Library of Munich, Germany.
  9. Alistair Munro, 1990. "Self-Selection and Optimal In-Kind Transfers," Working Papers Series 90/3, University of Stirling, Division of Economics.
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  12. Hessami, Zohal & Silke, Uebelmesser, 2012. "Empirical determinants of in-kind redistribution: Partisan biases and the role of inflation," MPRA Paper 38494, University Library of Munich, Germany.
  13. Janet Currie & Firouz Gahvari, 2007. "Transfers in Cash and In Kind: Theory Meets the Data," NBER Working Papers 13557, National Bureau of Economic Research, Inc.
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  15. Blomquist, Suren & Christiansen, Vidar, 1995. " Public Provision of Private Goods as a Redistributive Device in an Optimum Income Tax Model," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 547-67, December.
  16. Blackorby, Charles & Donaldson, David, 1988. "Cash versus Kind, Self-selection, and Efficient Transfers," American Economic Review, American Economic Association, vol. 78(4), pages 691-700, September.
  17. Aidt, Toke & Dutta, Jayasri & Sena, Vania, 2008. "Governance regimes, corruption and growth: Theory and evidence," Journal of Comparative Economics, Elsevier, vol. 36(2), pages 195-220, June.
  18. Philippe De Donder & Jean Hindriks, 1998. "The political economy of targeting," Public Choice, Springer, vol. 95(1), pages 177-200, April.
  19. Mendez, Fabio & Sepulveda, Facundo, 2006. "Corruption, growth and political regimes: Cross country evidence," European Journal of Political Economy, Elsevier, vol. 22(1), pages 82-98, March.
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  21. Dani Rodrik, 1996. "Why Do More Open Economies Have Bigger Governments?," NBER Working Papers 5537, National Bureau of Economic Research, Inc.
  22. Lundholm, M. & Ohlsson, H., 1995. "Wages for Women and Publicly Financed Day Care," Papers 1995-23, Uppsala - Working Paper Series.
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