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Legalize, tax, and deter: Optimal enforcement policies for corruptible officials

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  • Burlando, Alfredo
  • Motta, Alberto

Abstract

There is a heated debate on the merits of legalizing certain illegal, harmful and corrupting activities (such as trade in illicit drugs), but little theoretical insights on the consequences for optimal enforcement policies and corruption. We propose a model where the government hires law enforcers to report those who engage in a harmful activity. Offenders are allowed to respond by offering bribes to the law enforcers in exchange for their silence. When standard anti-corruption policies are costly to implement, we show that an alternative tax-and-legalize policy can yield significant benefits, especially in countries with weak institutions and for activities that are not too harmful. However, a tax-and-legalize scheme eliminates the distortions stemming from the threat of corruption by increasing the equilibrium number of harmful activities, which might explain why it is not as widespread a policy as the theory suggests.

Suggested Citation

  • Burlando, Alfredo & Motta, Alberto, 2016. "Legalize, tax, and deter: Optimal enforcement policies for corruptible officials," Journal of Development Economics, Elsevier, vol. 118(C), pages 207-215.
  • Handle: RePEc:eee:deveco:v:118:y:2016:i:c:p:207-215
    DOI: 10.1016/j.jdeveco.2015.08.007
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    Cited by:

    1. Ali Farazmand & Elina Simone & Giuseppe Lucio Gaeta & Salvatore Capasso, 2022. "Corruption, lack of Transparency and the Misuse of Public Funds in Times of Crisis: An introduction," Public Organization Review, Springer, vol. 22(3), pages 497-503, September.
    2. Salvatore Capasso & Rajeev K. Goel & James W. Saunoris, 2019. "Is it the gums, teeth or the bite? Effectiveness of dimensions of enforcement in curbing corruption," Economics of Governance, Springer, vol. 20(4), pages 329-369, December.
    3. Charles Angelucci & Antonio Russo, 2022. "Petty Corruption And Citizen Reports," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(2), pages 831-848, May.
    4. Robert Innes, 2017. "Lie aversion and self-reporting in optimal law enforcement," Journal of Regulatory Economics, Springer, vol. 52(2), pages 107-131, October.
    5. Federico Ceschel & Alessandro Hinna & Fabian Homberg, 2022. "Public Sector Strategies in Curbing Corruption: A Review of the Literature," Public Organization Review, Springer, vol. 22(3), pages 571-591, September.

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