Yardstick Competition, Corruption, and Electoral Incentives
This paper investigates the relationship between electoral incentives, institutions and corruption. We assume that voters use a yardstick criterion. The incumbent provides a public good and extracts rent, which are financed by imposing a distortionary tax. We demonstrate the possibility that yardstick competition itself fails to restrict rent seeking. We complement the static setting with a dynamic scenario where each incumbent politician faces an election after a finite, fixed term. Under relative performance evaluation, dynamic incentives impose more restriction on rent appropriation in comparison to the static case.
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