Preferences, Development and Corruption Trap

A perpetual scarcity of public goods/services produces distortions of an individual's attitudes towards the cost of bureaucratic procedures: even if bureaucracy is not cumbersome, poverty induces people to perceive honesty as too expensive and to prefer illegal payments because they cannot completely satisfy their needs by following the legal bureaucratic procedures. So traditional anticorruption measures such as the increase in corruption costs or the organization of public education campaigns would not permanently reduce corruption levels if poverty remains diffused. Using an overlapping generation model based on a mechanism of cultural transmission, we study the evolution both of social attidudes towards bureaucratic corruption and the institutional framework. Theoretical analysis displays how in poorer countries corruption appears to be a permanent state; institutional reforms are blocked and the only relevant anticorruption intervention consists in public education campaigns. However, also in this case, we simply obtain a temporary reduction of corruption. We call this situation "the corruption trap" because the preferences of population always converge to equilibria with a very high proportion of corrupt agents and honesty is only a temporary state due to anticorruption measures. Similar situations could be observed in developed countries with high levels of corruption owing to unexpected institutional shoks. Finally, we empirically corroborate the model's implications in a cross-country framework, using both corruption indices and a new data-set which measures the population's expectation of future corruption for each country.