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Erosion of State Power, Corruption Control and Fiscal Capacity

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  • Weijia Li
  • Gérard Roland
  • Yang Xie

Abstract

We model how corruption erodes state power, that is, the state’s ability to keep its apparatus under control in crises. Under a general assumption about fat-tailed risk of crisis, we show that given strong fiscal capacity, the head of the state will control local corruption at such a level that its power is secured; given weaker capacity, the state will over-tolerate corruption to retain officials, risking control in crises; moreover, a state may be trapped with too weak fiscal capacity, rampant corruption, and the state losing control in any real crisis, while having little incentive to invest in fiscal capacity. By developing historical narratives, we show that these theoretical results are consistent with experience from the Roman Empire, New Kingdom of Egypt, Ming China and many other powerful states in history.

Suggested Citation

  • Weijia Li & Gérard Roland & Yang Xie, 2022. "Erosion of State Power, Corruption Control and Fiscal Capacity," The Economic Journal, Royal Economic Society, vol. 132(644), pages 1542-1565.
    • Handle: RePEc:oup:econjl:v:132:y:2022:i:644:p:1542-1565.
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    File URL: http://hdl.handle.net/10.1093/ej/ueab068
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    Cited by:

    1. Ryan H. Murphy & Colin O’Reilly, 2023. "Freedom through taxation: the effect of fiscal capacity on the rule of law," European Journal of Law and Economics, Springer, vol. 56(1), pages 69-90, August.
    2. Bandyopadhyay, Subhayu & Sandler, Todd, 2023. "Voluntary participation in a terror group and counterterrorism policy," Journal of Economic Behavior & Organization, Elsevier, vol. 215(C), pages 500-513.
    3. Ryan H. Murphy, 2023. "State capacity, economic freedom, and classical liberalism," Constitutional Political Economy, Springer, vol. 34(2), pages 165-187, June.

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