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Live free or bribe: On the causal dynamics between economic freedom and corruption in U.S. states

Author

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  • Apergis, Nicholas
  • Dincer, Oguzhan C.
  • Payne, James E.

Abstract

We investigate the relationship between economic freedom and corruption using data from U.S. states covering almost a quarter of a century. Our study advances the existing literature on several fronts. First, instead of using subjective cross-country corruption indices assembled by various investment risk services, we use a more objective measure of corruption: the number of government officials convicted in a state for crimes related to corruption. Second, unlike previous studies, we exploit both time series and cross-sectional variation in the data in the estimation of a panel error correction model. The panel error correction model results show that in the long-run economic freedom, per capita income, and education have a negative and statistically significant impact on corruption whereas income inequality has a positive and statistically significant impact. The causality tests associated with the panel error correction model reveal bidirectional causality between economic freedom and corruption in both the short-run and long-run.

Suggested Citation

  • Apergis, Nicholas & Dincer, Oguzhan C. & Payne, James E., 2012. "Live free or bribe: On the causal dynamics between economic freedom and corruption in U.S. states," European Journal of Political Economy, Elsevier, vol. 28(2), pages 215-226.
    • Handle: RePEc:eee:poleco:v:28:y:2012:i:2:p:215-226
    DOI: 10.1016/j.ejpoleco.2011.10.001
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    JEL classification:

    • H1 - Public Economics - - Structure and Scope of Government
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior

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