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Corruption: Political Determinants and Macroeconomic Effects

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Author Info
Christian R. Ahlin () (Department of Economics, Vanderbilt Unversity)
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.vanderbilt.edu/Econ/wparchive/workpaper/vu01-w26.pdf
File Format: application/pdf
File Function: Revised version, 2001
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Publisher Info
Paper provided by Department of Economics, Vanderbilt University in its series Working Papers with number 0126.

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Date of creation: Apr 1999
Date of revision: Aug 2001
Handle: RePEc:van:wpaper:0126

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

Other versions of this item:

Find related papers by JEL classification:
D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Pranab Bardhan, 1997. "Corruption and Development: A Review of Issues," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1320-1346, September. [Downloadable!] (restricted)
  2. 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. [Downloadable!]
  3. Hongyi Li & Lixin Colin Xu & Heng-fu Zou, 2000. "Corruption, Income Distribution, and Growth," Economics and Politics, Blackwell Publishing, vol. 12(2), pages 155-182, 07. [Downloadable!] (restricted)
  4. Fisman, Raymond & Gatti, Roberta, 2000. "Decentralization and corruption - evidence across countries," Policy Research Working Paper Series 2290, The World Bank. [Downloadable!]
    Other versions:
  5. 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. [Downloadable!] (restricted)
  6. Sanjeev Gupta, 1998. "Does Corruption Affect Income Inequality and Poverty?," IMF Working Papers 98/76, International Monetary Fund.
  7. William M. Landes & Richard A. Posner, 1974. "The Private Enforcement of Law," NBER Working Papers 0062, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. 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. [Downloadable!] (restricted)
  9. Lloyd-Ellis, Huw & Bernhardt, Dan, 2000. "Enterprise, Inequality and Economic Development," Review of Economic Studies, Blackwell Publishing, vol. 67(1), pages 147-68, January.
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  10. 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 & Economics, University of Chicago Press, vol. 46(1), pages 269-92, April.
  11. 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. [Downloadable!] (restricted)
    Other versions:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. K Blackburn & G F Forgues-Puccio, 2004. "Distribution and Development in a Model of Misgovernance," Centre for Growth and Business Cycle Research Discussion Paper Series 42, Economics, The Univeristy of Manchester. [Downloadable!]
    Other versions:
  2. Shah, Anwar, 2006. "Corruption and decentralized public governance," Policy Research Working Paper Series 3824, The World Bank. [Downloadable!]
  3. Fabrizio Carmignani, 2005. "Efficiency Of Institutions, Political Stability And Income Dynamics," Public Economics 0503007, EconWPA. [Downloadable!]
  4. Osipian, Ararat, 2008. "The World is Flat: Modeling Educators’ Misconduct with Cellular Automata," MPRA Paper 7592, University Library of Munich, Germany. [Downloadable!]
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