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Corruption: Political Determinants and Macroeconomic Effects

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  • Christian R. Ahlin

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    (Department of Economics, Vanderbilt Unversity)

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    Abstract

    Two aspects of corruption are examined theoretically: its effect on macroeconomic variables, and its determination from the political environment. Corruption is defined in an occupational choice model as the extra fees or bribes that must be paid by some entrepreneurs. Even in an environment of perfect information and well-defined property rights, wages and total output decrease with the level of corruption. Inverted-U relationships of income inequality with both corruption and output are calculated. Second, two types of decentralization, regional and bureaucratic, are analyzed. The effects depend crucially on agents' mobility across regions. Under imperfect mobility assumptions, corruption decreases with regional decentralization and increases with bureaucratic decentralization. Two methods of controlling corruption are analyzed in this setting: democratic accountability and incentive payments. The same factor that makes bureaucratic decentralization more corrupt makes it more resistant to efforts to rein in corruption; the reverse is true for regional decentralization. This model matches emerging stylized facts relating corruption to output, inequality, and decentralization, and reinterprets findings linking bureaucratic wage levels and corruption.

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    File URL: http://www.accessecon.com/pubs/VUECON/vu01-w26.pdf
    File Function: Revised version, 2001
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    Bibliographic Info

    Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0126.

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    Date of creation: Aug 2001
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    Handle: RePEc:van:wpaper:0126

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    Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

    Related research

    Keywords: Corruption; decentralization; electoral accountability; optimal wage policy;

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    References

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    1. Brunetti, Aymo & Kisunko, Gregory & Weder, Beatrice, 1997. "Institutional obstacles to doing business : region-by-region results from a worldwide survey of the private sector," Policy Research Working Paper Series 1759, The World Bank.
    2. Fisman, Raymond & Gatti, Roberta, 2002. "Decentralization and corruption: evidence across countries," Journal of Public Economics, Elsevier, vol. 83(3), pages 325-345, March.
    3. Dan Bernhardt & Huw Lloyd-Ellis, 1993. "Enterprise, Inequality and Economic Development," Working Papers 893, Queen's University, Department of Economics.
    4. Di Tella, Rafael & Schargrodsky, Ernesto, 2003. "The Role of Wages and Auditing during a Crackdown on Corruption in the City of Buenos Aires," Journal of Law and Economics, University of Chicago Press, vol. 46(1), pages 269-92, April.
    5. Myerson Roger B., 1993. "Effectiveness of Electoral Systems for Reducing Government Corruption: A Game-Theoretic Analysis," Games and Economic Behavior, Elsevier, vol. 5(1), pages 118-132, January.
    6. Sanjeev Gupta, 1998. "Does Corruption Affect Income Inequality and Poverty?," IMF Working Papers 98/76, International Monetary Fund.
    7. Pranab Bardhan, 1997. "Corruption and Development: A Review of Issues," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1320-1346, September.
    8. William M. Landes & Richard A. Posner, 1974. "The Private Enforcement of Law," NBER Working Papers 0062, National Bureau of Economic Research, Inc.
    9. Hongyi Li & Lixin Colin Xu & Heng-fu Zou, 2000. "Corruption, Income Distribution, and Growth," CEMA Working Papers 472, China Economics and Management Academy, Central University of Finance and Economics.
    10. Besley, Timothy & McLaren, John, 1993. "Taxes and Bribery: The Role of Wage Incentives," Economic Journal, Royal Economic Society, vol. 103(416), pages 119-41, January.
    11. Mookherjee, Dilip & Png, I P L, 1995. "Corruptible Law Enforcers: How Should They Be Compensated?," Economic Journal, Royal Economic Society, vol. 105(428), pages 145-59, January.
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    Cited by:
    1. Osipian, Ararat, 2008. "The World is Flat: Modeling Educators’ Misconduct with Cellular Automata," MPRA Paper 7592, University Library of Munich, Germany.
    2. Jay Pil Choi & Marcel Thum, 2005. "Corruption And The Shadow Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(3), pages 817-836, 08.
    3. Blackburn, Keith & Forgues-Puccio, Gonzalo F., 2007. "Distribution and development in a model of misgovernance," European Economic Review, Elsevier, vol. 51(6), pages 1534-1563, August.
    4. Shah, Anwar, 2006. "Corruption and decentralized public governance," Policy Research Working Paper Series 3824, The World Bank.
    5. Fabrizio Carmignani, 2007. "Efficiency of Institutions, Political Stability and Income Dynamics," The IUP Journal of Managerial Economics, IUP Publications, vol. 0(1), pages 6-30, February.

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