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Policy Compromises: Corruption And Regulation In A Democracy




This paper evaluates the extent of regulation in a democracy with corruption. Elected politicians can restrict entry of firms in exchange for bribes from entrepreneurs. Full liberalization implies free entry and allocative efficiency. Voters re-elect politicians based on observed performance. We demonstrate that voters agree to tolerate corruption and inefficient regulation; that efficient policies can be promoted by productivity growth; that productivity growth reduces the cost of providing wage incentives; and that corruption is procyclical and economic policy is countercyclical in a corrupt democracy. Copyright 2008 The Authors. Journal compilation 2008 Blackwell Publishing Ltd.

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  • Toke S. Aidt & Jayasri Dutta, 2008. "Policy Compromises: Corruption And Regulation In A Democracy," Economics and Politics, Wiley Blackwell, vol. 20(3), pages 335-360, November.
  • Handle: RePEc:bla:ecopol:v:20:y:2008:i:3:p:335-360

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    References listed on IDEAS

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    Cited by:

    1. Antonio Zanella, 2011. "Solvency II and the European Sovereign Debt Crisis: The Case of Misplaced Prudence," Chapters,in: Institutions in Crisis, chapter 6 Edward Elgar Publishing.
    2. Arye L. Hillman & Heinrich W. Ursprung, 2016. "Where are the rent seekers?," Constitutional Political Economy, Springer, vol. 27(2), pages 124-141, June.
    3. Michael Breen & Robert Gillanders, 2012. "Corruption, institutions and regulation," Economics of Governance, Springer, vol. 13(3), pages 263-285, September.
    4. Campos, Nauro F & Estrin, Saul & Proto, Eugenio, 2010. "Corruption as a Barrier to Entry: Theory and Evidence," CEPR Discussion Papers 8061, C.E.P.R. Discussion Papers.
    5. Toke S. Aidt & Jayasri Dutta, 2009. "A Theory Of The Corrupt Keynesian," World Scientific Book Chapters,in: New And Enduring Themes In Development Economics, chapter 4, pages 93-111 World Scientific Publishing Co. Pte. Ltd..
    6. Toke S. Aidt, 2011. "The Causes of Corruption," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 9(2), pages 15-19, 07.
    7. Toke S. Aidt, 2009. "Corruption, institutions, and economic development," Oxford Review of Economic Policy, Oxford University Press, vol. 25(2), pages 271-291, Summer.
    8. De Rosa Donato & Gooroochurn Nishaal & Görg Holger, 2015. "Corruption and Productivity: Firm-level Evidence," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 235(2), pages 115-138, April.
    9. De Rosa, Donato & Gooroochurn, Nishaal & Gorg, Holger, 2010. "Corruption and productivity : firm-level evidence from the BEEPS survey," Policy Research Working Paper Series 5348, The World Bank.
    10. repec:ces:ifodic:v:9:y:2011:i:2:p:16134033 is not listed on IDEAS
    11. Alexeev, Michael & Song, Yunah, 2013. "Corruption and product market competition: An empirical investigation," Journal of Development Economics, Elsevier, vol. 103(C), pages 154-166.
    12. Toke S. Aidt, 2016. "Rent seeking and the economics of corruption," Constitutional Political Economy, Springer, vol. 27(2), pages 142-157, June.
    13. Ridha Chkoundali & Houda Haffoudhi & Houda Abdenneji, 2011. "Institutional Sphere Contribution to Human Development: An Institutional Approach," Working Papers 629, Economic Research Forum, revised 09 Jan 2011.
    14. Adams, Samuel & Atsu, Francis, 2015. "Assessing the distributional effects of regulation in developing countries," Journal of Policy Modeling, Elsevier, vol. 37(5), pages 713-725.
    15. De Rosa, Donato & Gooroochurn, Nishaal & Görg, Holger, 2010. "Corruption and productivity firm-level evidence from the BEEPS survey," Kiel Working Papers 1632, Kiel Institute for the World Economy (IfW).

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