Corruption and Political Accountability in Good and Bad Economic Times

While the literature extensively explores the structural enablers of corruption and its adverse effects on economic performance, less is known about how the state of the economy influences corruption and political accountability. To address this gap, we develop a theoretical model in which politicians may divert resources from public goods and citizens can respond by punishing corruption. In our model, periods of positive economic conditions increase corruption while weakening accountability. We validate these predictions through a laboratory experiment, finding that corruption rates significantly rise when economic conditions are good. However, citizens' willingness to punish corrupt politicians remains stable across the business cycle. Punishment decisions are driven by observed public good allocations; low allocations prompt significantly higher punishment rates than high allocations, even resulting in the punishment of honest politicians during bad economic times. Additionally, we assess the role of corruption expectations in shaping responses: citizens with prior beliefs that politicians are corrupt are less likely to punish than those who believe politicians are honest when public good provision is low. Accountability becomes more challenging when citizens struggle to clearly identify corruption, and citizens are more forgiving of corruption during good economic times and if they already mistrust politicians. These findings underscore the importance of robust transparency and accountability mechanisms in upholding governance standards, particularly in the face of economic fluctuations and public mistrust.