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Can the exchange rate regime influence corruption?

  • Katherina Popkova

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    This paper analyses the influence of the exchange rate regime of a country on the level of tolerated corruption with a special focus on the interdependency of monetary and fiscal policies. Using a simple theoretical framework based on Barro-Gordon-Model I compare independent monetary policy with a tight peg arrangement in order to find out which regime is more likely to induce governments to intensify the fight against corruption. It is shown that if corruption has a considerable positive impact on output, a tight peg regime can increase tolerated corruption. However, if corruption has a negative effect on output, a pegged exchange rate regime will lead to a lower level of tolerated corruption. The issue of particular interest appears to be the finding that a strong positive impact of corruption on output can induce governments to choose a pegging regime while a weak positive impact of corruption (and a negative influence of corruption even more) provides an incentive to keep monetary independence.

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    File URL: http://www.wiwi.uni-siegen.de/vwl/repec/sie/papers/148-11.pdf
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    Paper provided by Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht in its series Volkswirtschaftliche Diskussionsbeiträge with number 148-11.

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    Length: 19 pages
    Date of creation: 2011
    Date of revision:
    Handle: RePEc:sie:siegen:148-11
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    Web page: http://www.uni-siegen.de/fb5/vwl/research/diskussionsbeitraege/
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    1. Keith Blackburn & Kyriakos C. Neanidis & M. Emranul Haque, 2008. "Corruption, Seigniorage and Growth: Theory and Evidence," CESifo Working Paper Series 2354, CESifo Group Munich.
    2. K Blackburn & G F Forgues-Puccio, 2004. "Distribution and Development in a Model of Misgovernance," Centre for Growth and Business Cycle Research Discussion Paper Series 42, Economics, The Univeristy of Manchester.
    3. Alesina, Alberto & Tabellini, Guido, 1987. "Rules and Discretion with Noncoordinated Monetary and Fiscal Policies," Economic Inquiry, Western Economic Association International, vol. 25(4), pages 619-30, October.
    4. Khalid Sekkat & Pierre-Guillaume Méon, 2008. "Institutional quality and trade: which institutions? Which trade?," ULB Institutional Repository 2013/7372, ULB -- Universite Libre de Bruxelles.
    5. Carsten Hefeker, 2009. "Taxation, Corruption and the Exchange Rate Regime," MAGKS Papers on Economics 200911, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    6. 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.
    7. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
    8. Coppier, Raffaella & Michetti, Elisabetta, 2006. "Corruption vs production. A non-linear relationship," Economic Modelling, Elsevier, vol. 23(4), pages 622-637, July.
    9. Huang, Haizhou & Wei, Shang-Jin, 2006. "Monetary policies for developing countries: The role of institutional quality," Journal of International Economics, Elsevier, vol. 70(1), pages 239-252, September.
    10. Barreto, Raul A., 2000. "Endogenous corruption in a neoclassical growth model," European Economic Review, Elsevier, vol. 44(1), pages 35-60, January.
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