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Corruption in an Unstable Environment

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Author Info
Merz, Christian
Abstract

In this paper we study the influence of economic stability on the level of corruption in a country, where high stability is defined as a low level of variance in economic output growth. We present a political competition model with exogenous shocks to economic output where politicians can decide about the level of corruption and an election is held within the framework of a Bayesian game. Corruption is assumed to be harmful to the economy and politicians try to maximize income from corrupt activities as well as the probability of getting reelected. We show that independent of the absolute size of economic output growth a low degree of economic stability yields a high level of corruption and vice versa. Thus we conclude that not only does corruption influence economic activity, but also the opposite effect might exist, namely that exogenously caused fluctuations of output influence the readiness of politicians to behave in a corrupt manner. To support our theoretical findings we additionally carry out a cross-country empirical analysis of GDP growth variance and corruption and come to results confirming our thesis.

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Paper provided by University of Munich, Department of Economics in its series Discussion Papers in Economics with number 367.

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Date of creation: May 2004
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Handle: RePEc:lmu:muenec:367

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Related research
Keywords: Corruption; Political Competition; Bayesian Game; Cross Country Study on Corruption;

Find related papers by JEL classification:
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information

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References listed on IDEAS
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  1. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August. [Downloadable!] (restricted)
  2. Andvig, Jens Chr. & Moene, Karl Ove, 1990. "How corruption may corrupt," Journal of Economic Behavior & Organization, Elsevier, vol. 13(1), pages 63-76, January. [Downloadable!] (restricted)
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  3. Daron Acemoglu & James A. Robinson, 2000. "Why Did The West Extend The Franchise? Democracy, Inequality, And Growth In Historical Perspective," The Quarterly Journal of Economics, MIT Press, vol. 115(4), pages 1167-1199, November. [Downloadable!] (restricted)
    Other versions:
  4. Alesina, Alberto & Perotti, Roberto, 1996. "Income distribution, political instability, and investment," European Economic Review, Elsevier, vol. 40(6), pages 1203-1228, June. [Downloadable!] (restricted)
    Other versions:
  5. 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. [Downloadable!] (restricted)
  6. Coate, Stephen & Morris, Stephen, 1995. "On the Form of Transfers in Special Interests," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1210-35, December. [Downloadable!] (restricted)
  7. Shleifer, Andrei & Vishny, Robert W, 1993. "Corruption," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 599-617, August. [Downloadable!] (restricted)
    Other versions:
    • Andrei Shleifer & Robert W. Vishny, 1993. "Corruption," NBER Working Papers 4372, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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