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Instability and the Incentives for Corruption

  • Campante, Filipe Robin
  • Chor, Davin
  • Do, Quoc-Anh

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.

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Paper provided by Harvard Kennedy School of Government in its series Scholarly Articles with number 4778510.

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Date of creation: 2009
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Publication status: Published in Economics and Politics
Handle: RePEc:hrv:hksfac:4778510
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  1. Roubini, Nouriel & Swagel, Phillip & Ozler, Sule & Alesina, Alberto, 1996. "Political Instability and Economic Growth," Scholarly Articles 4553024, Harvard University Department of Economics.
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  12. Daron Acemoglu, 2005. "Politics and Economics in Weak and Strong States," NBER Working Papers 11275, National Bureau of Economic Research, Inc.
  13. 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).
  14. Blundell, R. & Bond, S., 1995. "Initial Conditions and Moment Restrictions in Dynamic Panel Data Models," Economics Papers 104, Economics Group, Nuffield College, University of Oxford.
  15. Rafael Di Tella & Alberto Ades, 1999. "Rents, Competition, and Corruption," American Economic Review, American Economic Association, vol. 89(4), pages 982-993, September.
  16. Edward L. Glaeser & Claudia Goldin, 2006. "Corruption and Reform: Lessons from America's Economic History," NBER Books, National Bureau of Economic Research, Inc, number glae06-1, October.
  17. John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, vol. 50(1), pages 5-25, January.
  18. Jakob Svensson, 2005. "Eight Questions about Corruption," Journal of Economic Perspectives, American Economic Association, vol. 19(3), pages 19-42, Summer.
  19. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August.
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