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Instability And The Incentives For Corruption

  • FILIPE R. CAMPANTE
  • DAVIN CHOR
  • QUOC-ANH DO

We investigate the relationship between corruption and political stability, from both theoretical and empirical perspectives. We propose a model of incumbent behavior that features the interplay of two effects: a horizon effect, whereby greater instability leads the incumbent to embezzle more during his short window of opportunity, and a demand effect, by which the private sector is more willing to bribe stable incumbents. The horizon effect dominates at low levels of stability, because firms are unwilling to pay high bribes and unstable incumbents have strong incentives to embezzle, whereas the demand effect gains salience in more stable regimes. Together, these two effects generate a non-monotonic, U-shaped relationship between total corruption and stability. On the empirical side, we find a robust U-shaped pattern between country indices of corruption perception and various measures of incumbent stability, including historically observed average tenures of chief executives and governing parties: regimes that are very stable or very unstable display higher levels of corruption when compared with those in an intermediate range of stability. These results suggest that minimizing corruption may require an electoral system that features some re-election incentives, but with an eventual term limit. Copyright 2009 The Authors. Journal compilation 2009 Blackwell Publishing Ltd.

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Article provided by Wiley Blackwell in its journal Economics & Politics.

Volume (Year): 21 (2009)
Issue (Month): 1 (03)
Pages: 42-92

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Handle: RePEc:bla:ecopol:v:21:y:2009:i:1:p:42-92
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  1. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
  2. Fredriksson, Per G. & Svensson, Jakob, 2003. "Political instability, corruption and policy formation: the case of environmental policy," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1383-1405, August.
  3. R Blundell & Steven Bond, . "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
  4. John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, vol. 50(1), pages 5-25, January.
  5. Finan, Frederico & Ferraz, Claudio, 2005. "Reelection Incentives and Political Corruption: Evidence from Brazilian Audit Reports," 2005 Annual meeting, July 24-27, Providence, RI 19544, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  6. repec:ner:tilbur:urn:nbn:nl:ui:12-3125517 is not listed on IDEAS
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