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Legal Corruption

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Author Info
Kaufmann, Daniel
Vicente, Pedro C.

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Abstract

We challenge the conventional definition of corruption as the abuse of public office for private gain, making a distinction between legal and illegal forms of corruption, and paying more attention to corporate patterns of corruption (which also affect public corruption). We undertake to identify general determinants of the pattern of legal and illegal corruption worldwide, and present a model where both corruption (modeled explicitly in the context of allocations) and the political equilibrium are endogenous. Three types of equilibrium outcomes are identified as a function of basic parameters, namely initial conditions (assets/productivity), equality, and fundamental political accountability. These equilibria are: i) an illegal corruption equilibrium, where the political elite does not face binding incentives; ii) a legal corruption equilibrium, where the political elite is obliged to incur on a cost to deceive the population; and iii) a no-corruption equilibrium, where the population cannot be deceived. An integral empirical test of the model is performed, using a broad range of variables and sources. Its core variables, namely regarding legal corruption (and other manifestations of corporate corruption) come from an original survey developed with the World Economic Forum (in the Executive Opinion Survey 2004 of the Global Competitiveness Report). The empirical results generally validate the model and explanations. Some salient implications emerge.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8186.

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Date of creation: Oct 2005
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Handle: RePEc:pra:mprapa:8186

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Find related papers by JEL classification:
O57 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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  1. Badi H. Baltagi & Panicos O. Demetriades & Siong Hook Law, 2007. "Financial Development, Openness and Institutions: Evidence from Panel Data," WEF Working Papers 0022, ESRC World Economy and Finance Research Programme, Birkbeck, University of London. [Downloadable!]
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  2. Faccio, Mara & Parsley, David, 2006. "Sudden Deaths: Taking Stock of Political Connections," CEPR Discussion Papers 5460, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  3. Tina Søreide, 2006. "Beaten by bribery: Why not blow the whistle?," CMI Working Papers WP 2006: 5, CMI (Chr. Michelsen Institute), Bergen, Norway. [Downloadable!]
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  4. Faccio, Mara & Parsley, Davie, 2007. "Sudden Deaths: Taking Stock of Geographic Ties," MPRA Paper 6042, University Library of Munich, Germany. [Downloadable!]
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