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Instability and Incentives for Corruption

Author

Listed:
  • Davin Chor

    (SMU)

  • Do Quoc-Anh
  • Filipe R Campante

Abstract

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, since 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 nonmonotonic, 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 to those in an intermediate range of stability. These results suggest that minimizing corruption may require an electoral system that features some reelection incentives, but with an eventual term limit.

Suggested Citation

  • Davin Chor & Do Quoc-Anh & Filipe R Campante, 2008. "Instability and Incentives for Corruption," Macroeconomics Working Papers 22070, East Asian Bureau of Economic Research.
  • Handle: RePEc:eab:macroe:22070
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Quoc-Anh Do & Filipe R. Campante, 2009. "Keeping Dictators Honest: the Role of Population Concentration," Working Papers 01-2009, Singapore Management University, School of Economics.
    2. Marcos Chamon & João Manoel Pinho de Mello & Sergio Firpo, 2008. "Electoral rules, political competition and fiscal spending : regression discontinuity evidence from Brazilian municipalities," Textos para discussão 559, Department of Economics PUC-Rio (Brazil).
    3. Giorgio Bellettini & Carlotta Berti Ceroni & Giovanni Prarolo, 2013. "Persistence Of Politicians And Firms' Innovation," Economic Inquiry, Western Economic Association International, vol. 51(4), pages 2056-2070, October.
    4. Chamon, Marcos & de Mello, João M. P. & Firpo, Sergio, 2009. "Electoral Rules, Political Competition and Fiscal Expenditures: Regression Discontinuity Evidence from Brazilian Municipalities," IZA Discussion Papers 4658, Institute for the Study of Labor (IZA).
    5. Coviello, Decio & Gagliarducci, Stefano, 2010. "Building Political Collusion: Evidence from Procurement Auctions," IZA Discussion Papers 4939, Institute for the Study of Labor (IZA).

    More about this item

    Keywords

    corruption; Political Stability; Incumbent Tenure; Term Limits;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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