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The Political Economy of Corruption and and the Role of Financial Institutions

  • Hainz, Christa
  • Boerner, Kira

In transition and developing countries, we observe rather high levels of corruption even they have democratic political systems. This is surprising from a political economy perspective, as a majority of the people generally suffers from high corruption levels. Our model 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 more corruption as more voters are part of the corrupt system. Well-functioning financial institutions, in turn, can increase the political support for anti-corruption measures.

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Paper provided by Verein für Socialpolitik, Research Committee Development Economics in its series Proceedings of the German Development Economics Conference, Kiel 2005 with number 6.

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Date of creation: 2005
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Handle: RePEc:zbw:gdec05:3479
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