Corruption: Political Determinants and Macroeconomic Effects
Working Paper No. 01-W26
Christian R. Ahlin
ABSTRACT [article]
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.