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Hold Your Nose and Vote; Why Do Some Democracies Tolerate Corruption?

  • Marco Pani
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    This paper analyses why corruption can persist for long periods in a democracy and inquires whether this can result from a well-informed rational choice of the citizens. By applying a citizen-candidate model of representative democracy, the paper analyzes how corruption distortsthe allocation of resources between public and private expenditure, altering the policy preferences of elected and nonelected citizens in opposite directions. The result is a reduction in real public expenditure and, if the median voter's demand for public goods is sufficiently elastic, a tax reduction. In this case, some citizens can indirectly benefit from corruption. The paper shows that, under this condition, if the citizens anticipate a shift in policy preferences in favor of higher public expenditure, they may support institutional arrangements that favor corruption (such as a weak enforcement of the law) in order to alter future policy decisions in their favor. This result complements the findings of other studies that have attributed the persistence of corruption in a democracyto some failure on the part of the voters or the electoral system. It also bears implications for developing effective anticorruption strategies and for redefining the role that can be played by the international community.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/83.

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    Length: 32
    Date of creation: 01 Apr 2009
    Date of revision:
    Handle: RePEc:imf:imfwpa:09/83
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    1. Timothy Besley & Stephen Coate, 1997. "An Economic Model of Representative Democracy," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 85-114.
    2. Del Monte, Alfredo & Papagni, Erasmo, 2001. "Public expenditure, corruption, and economic growth: the case of Italy," European Journal of Political Economy, Elsevier, vol. 17(1), pages 1-16, March.
    3. Torsten Persson & Guido Tabellini & Francesco Trebbi, . "Electoral Rules and Corruption," Working Papers 182, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    4. Roger B. Myerson, 1991. "Effectiveness of Electoral Systems for Reducing Government Corruption: A Game-Theoretic Analysis," Discussion Papers 956, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    5. César Calderón & Alberto E. Chong, 2005. "Do Democracies Breed Rent-Seeking Behavior?," IDB Publications (Working Papers) 6695, Inter-American Development Bank.
    6. Gary S. Becker, 1983. "A Theory of Competition Among Pressure Groups for Political Influence," The Quarterly Journal of Economics, Oxford University Press, vol. 98(3), pages 371-400.
    7. Chander, Parkash & Wilde, Louis, 1992. "Corruption in tax administration," Journal of Public Economics, Elsevier, vol. 49(3), pages 333-349, December.
    8. repec:cup:cbooks:9780521632935 is not listed on IDEAS
    9. Gary S. Becker, 1968. "Crime and Punishment: An Economic Approach," Journal of Political Economy, University of Chicago Press, vol. 76, pages 169.
    10. Basu, Kaushik & Bhattacharya, Sudipto & Mishra, Ajit, 1992. "Notes on bribery and the control of corruption," Journal of Public Economics, Elsevier, vol. 48(3), pages 349-359, August.
    11. R. G. D. Allen, 1934. "The Concept of Arc Elasticity of Demand: I," Review of Economic Studies, Oxford University Press, vol. 1(3), pages 226-229.
    12. Rob McGregor, 2007. "Federal Reserve transparency: The more things change, the more they stay the same?," Public Choice, Springer, vol. 133(3), pages 269-273, December.
    13. Hindriks, Jean & Keen, Michael & Muthoo, Abhinay, 1999. "Corruption, extortion and evasion," Journal of Public Economics, Elsevier, vol. 74(3), pages 395-430, December.
    14. Mookherjee, Dilip & Png, I P L, 1995. "Corruptible Law Enforcers: How Should They Be Compensated?," Economic Journal, Royal Economic Society, vol. 105(428), pages 145-59, January.
    15. Galeotti, Gianluigi & Merlo, Antonio, 1994. "Political Collusion and Corruption in a Representative Democracy," Public Finance = Finances publiques, , vol. 49(Supplemen), pages 232-43.
    16. Martin J. Osborne & Al Slivinksi, 1995. "A Model of Political Competition with Citizen-Candidates," Department of Economics Working Papers 1995-01, McMaster University.
    17. Gene M. Grossman & Elhanan Helpman, 1996. "Electoral Competition and Special Interest Politics," Review of Economic Studies, Oxford University Press, vol. 63(2), pages 265-286.
    18. Ades, Alberto & Di Tella, Rafael, 1997. "National Champions and Corruption: Some Unpleasant Interventionist Arithmetic," Economic Journal, Royal Economic Society, vol. 107(443), pages 1023-42, July.
    19. Treisman, Daniel, 2000. "The causes of corruption: a cross-national study," Journal of Public Economics, Elsevier, vol. 76(3), pages 399-457, June.
    20. Paldam, Martin, 2002. "The cross-country pattern of corruption: economics, culture and the seesaw dynamics," European Journal of Political Economy, Elsevier, vol. 18(2), pages 215-240, June.
    21. repec:cup:cbooks:9780521659123 is not listed on IDEAS
    22. Dudley, L. & Montmarquette, C., 1986. "Bureaucratic Corruption As a Constraint on Voter Choice," Cahiers de recherche 8635, Universite de Montreal, Departement de sciences economiques.
    23. Besley, Timothy & McLaren, John, 1993. "Taxes and Bribery: The Role of Wage Incentives," Economic Journal, Royal Economic Society, vol. 103(416), pages 119-41, January.
    24. Robert Barro, 1973. "The control of politicians: An economic model," Public Choice, Springer, vol. 14(1), pages 19-42, March.
    25. Rose-Ackerman, Susan, 1975. "The economics of corruption," Journal of Public Economics, Elsevier, vol. 4(2), pages 187-203, February.
    26. Mauro, Paolo, 1998. "Corruption and the composition of government expenditure," Journal of Public Economics, Elsevier, vol. 69(2), pages 263-279, June.
    27. Sanjeev Gupta & Hamid Davoodi & Rosa Alonso-Terme, 2002. "Does corruption affect income inequality and poverty?," Economics of Governance, Springer, vol. 3(1), pages 23-45, 03.
    28. Beenstock, Michael, 1979. "Corruption and development," World Development, Elsevier, vol. 7(1), pages 15-24, January.
    29. Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 681-712.
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