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A Political Economy Explanation for In-kind Redistribution: The Interplay of Corruption and Democracy

  • Zohal Hessami

    ()

    (Department of Economics, University of Konstanz, Germany)

  • Claudio Thum

    ()

    (Center for Economic Studies, University of Munich, Germany)

  • Silke Uebelmesser

    ()

    (Department of Economics, University of Jena, Germany)

This paper identifies a novel political-economy explanation for the observed variation in the cash and in-kind (basic health care, public housing or food stamps) mixture of social transfers. We put forward the hypothesis that the share of in-kind transfers is positively correlated with corruption in democratic countries. The argument is derived in a theoretical model which assumes that it is easier for politicians to appropriate cash transfers than in-kind transfers. Voters in corrupt countries know that cash transfers invite corrupt behavior and therefore they elect parties that opt for in-kind redistributive measures. The empirical analysis for 34 OECD countries over the 1984 – 2007 period provides robust evidence in favor of this hypothesis. Moreover, the positive correlation between the in-kind share of social transfers and perceived corruption is stronger for the “most democratic” OECD countries and in countries with specific institutional characteristics such as free media that further enhance democratic accountability.

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Paper provided by Department of Economics, University of Konstanz in its series Working Paper Series of the Department of Economics, University of Konstanz with number 2012-25.

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Length: 31 pages
Date of creation: 19 Nov 2012
Date of revision:
Handle: RePEc:knz:dpteco:1225
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  9. Janet Currie & Firouz Gahvari, 2008. "Transfers in Cash and In-Kind: Theory Meets the Data," Journal of Economic Literature, American Economic Association, vol. 46(2), pages 333-83, June.
  10. Balestrino, Alessandro, 1999. " The Desirability of In-Kind Transfers in the Presence of Distortionary Taxes," Journal of Economic Surveys, Wiley Blackwell, vol. 13(4), pages 333-54, September.
  11. Gupta, Sanjeev & de Mello, Luiz & Sharan, Raju, 2001. "Corruption and military spending," European Journal of Political Economy, Elsevier, vol. 17(4), pages 749-777, November.
  12. Hessami, Zohal & Uebelmesser, Silke, 2013. "Empirical determinants of in-kind redistribution: Partisan biases and the role of inflation," Economics Letters, Elsevier, vol. 118(2), pages 318-320.
  13. Lundholm, M. & Ohlsson, H., 1995. "Wages for Women and Publicly Financed Day Care," Papers 1995-23, Uppsala - Working Paper Series.
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  15. Blackorby, Charles & Donaldson, David, 1988. "Cash versus Kind, Self-selection, and Efficient Transfers," American Economic Review, American Economic Association, vol. 78(4), pages 691-700, September.
  16. Hessami, Zohal, 2010. "Corruption and the Composition of Public Expenditures: Evidence from OECD Countries," MPRA Paper 25945, University Library of Munich, Germany.
  17. Philippe De Donder & Jean Hindriks, 1998. "The political economy of targeting," Public Choice, Springer, vol. 95(1), pages 177-200, April.
  18. Munro, Alistair, 1992. "Self-Selection and Optimal In-Sind Transfers," Economic Journal, Royal Economic Society, vol. 102(414), pages 1184-96, September.
  19. Mendez, Fabio & Sepulveda, Facundo, 2006. "Corruption, growth and political regimes: Cross country evidence," European Journal of Political Economy, Elsevier, vol. 22(1), pages 82-98, March.
  20. Bearse, P. & Glomm, G. & Janeba, E., 2000. "Why poor countries rely mostly on redistribution in-kind," Journal of Public Economics, Elsevier, vol. 75(3), pages 463-481, March.
  21. Giovanni S.F. Bruno, 2005. "Estimation and inference in dynamic unbalanced panel data models with a small number of individuals," KITeS Working Papers 165, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised Jun 2005.
  22. Mauro, Paolo, 1998. "Corruption and the composition of government expenditure," Journal of Public Economics, Elsevier, vol. 69(2), pages 263-279, June.
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