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The Political Economy of Corruption & the Role of Financial Institutions

  • Kira Boerner
  • Christa Hainz

    ()

In many developing and transition countries, we observe rather high levels of corruption. This is surprising from a political economy perspective, as the majority of people in a corrupt country suffer from high corruption levels. Our model is based on the fact that corrupt offcials have to pay entry fees 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 are part of the corrupt system and, more importantly, as the rents from corruption are distributed differently. Thus, the economic system has an effect on political outcomes. Well-functioning financial institutions, in turn, increase the political support for anti-corruption measures.

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File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp892.pdf
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Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number wp892.

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Length: pages
Date of creation: 01 Oct 2007
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Handle: RePEc:wdi:papers:2007-892
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