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Corruption: Political Determinants and Macroeconomic Effects

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  • Christian R. Ahlin

    (Department of Economics, Vanderbilt Unversity)

Abstract

Two aspects of corruption are examined theoretically: its effect on macroeconomic variables, and its determination from the political environment. Corruption is defined in an occupational choice model as the extra fees or bribes that must be paid by some entrepreneurs. Even in an environment of perfect information and well-defined property rights, wages and total output decrease with the level of corruption. Inverted-U relationships of income inequality with both corruption and output are calculated. Second, two types of decentralization, regional and bureaucratic, are analyzed. The effects depend crucially on agents' mobility across regions. Under imperfect mobility assumptions, corruption decreases with regional decentralization and increases with bureaucratic decentralization. Two methods of controlling corruption are analyzed in this setting: democratic accountability and incentive payments. The same factor that makes bureaucratic decentralization more corrupt makes it more resistant to efforts to rein in corruption; the reverse is true for regional decentralization. This model matches emerging stylized facts relating corruption to output, inequality, and decentralization, and reinterprets findings linking bureaucratic wage levels and corruption.

Suggested Citation

  • Christian R. Ahlin, 2001. "Corruption: Political Determinants and Macroeconomic Effects," Vanderbilt University Department of Economics Working Papers 0126, Vanderbilt University Department of Economics.
    • Handle: RePEc:van:wpaper:0126
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    Citations

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    Cited by:

    1. Arvind K. Jain, 2011. "Corruption: Theory, Evidence and Policy," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 9(2), pages 3-9, 07.
    2. Anisah Alfada, 2019. "Does Fiscal Decentralization Encourage Corruption in Local Governments? Evidence from Indonesia," JRFM, MDPI, vol. 12(3), pages 1-14, July.
    3. Marius Constantin PROFIROIU & Septimiu Rares SZABO, 2016. "Outsourcing vs decentralisation: A comparative analysis in Central and Eastern Europe," Eco-Economics Review, Ecological University of Bucharest, Economics Faculty and Ecology and Environmental Protection Faculty, vol. 2(2), pages 3-26, December.
    4. Jay Pil Choi & Marcel Thum, 2005. "Corruption And The Shadow Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(3), pages 817-836, August.
    5. Fabrizio Carmignani, 2007. "Efficiency of Institutions, Political Stability and Income Dynamics," The IUP Journal of Managerial Economics, IUP Publications, vol. 0(1), pages 6-30, February.
    6. Blackburn, Keith & Forgues-Puccio, Gonzalo F., 2007. "Distribution and development in a model of misgovernance," European Economic Review, Elsevier, vol. 51(6), pages 1534-1563, August.
    7. Anwar Shah, 2006. "Corruption and Decentralized Public Governance," Chapters, in: Ehtisham Ahmad & Giorgio Brosio (ed.), Handbook of Fiscal Federalism, chapter 19, Edward Elgar Publishing.
    8. Yu-Bong Lai, 2016. "Does Tax Competition Reduce Corruption?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 63(4), pages 331-356, September.
    9. Anwar Shah, 2014. "Decentralized Provision of Public Infrastructure and Corruption," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1418, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    10. Leonardo Baggiani & Enrico Colombatto, 2017. "Feasible taxation in advanced democracies," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 64(3), pages 213-229, September.
    11. Osipian, Ararat, 2008. "The World is Flat: Modeling Educators’ Misconduct with Cellular Automata," MPRA Paper 7592, University Library of Munich, Germany.

    More about this item

    Keywords

    Corruption; decentralization; electoral accountability; optimal wage policy;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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