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The Political Economy of Corruption and the Role of Financial Institutions

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  • Börner, Kira
  • Hainz, Christa

Abstract

In transition and developing countries, we observe rather high levels of corruption even if they have democratic political systems. This is surprising from a political economy perspective, as the majority of people generally suffers from high corruption levels. Our model is based on the fact that corrupt officials have to pay an entry fee to get lucrative positions. In a probabilistic voting model, we show that a lack of financial institutions can lead to more corruption as more voters become part of the corrupt system. Well-functioning financial institutions, in turn, can increase the political support for anti-corruption measures.

Suggested Citation

  • Börner, Kira & Hainz, Christa, 2004. "The Political Economy of Corruption and the Role of Financial Institutions," Discussion Papers in Economics 411, University of Munich, Department of Economics.
  • Handle: RePEc:lmu:muenec:411
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    References listed on IDEAS

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    Cited by:

    1. Franco Mariuzzo & Patrick Paul Walsh & Ciara Whelan, 2004. "EU Merger Control in Differentiated Product Industries," CESifo Working Paper Series 1312, CESifo Group Munich.
    2. Rajeev Goel & Iftekhar Hasan, 2011. "Economy-wide corruption and bad loans in banking: international evidence," Applied Financial Economics, Taylor & Francis Journals, vol. 21(7), pages 455-461.

    More about this item

    Keywords

    Corruption; Financial Markets; Institutions; Development; Voting;

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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