Democracy, rule of law, corruption incentives and growth

David de la Croix and Clara Delavallade

No 2008035, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: We bridge the gap between the standard theory of growth and the mostly static theory of corruption. Some public investment can be diverted from its purpose by corrupt individuals. Voters determine the level of public investment subject to an incentive constraint equalizing the returns from productive and corrupt activities. We concentrate on two exogenous institutional parameters: the "technology of corruption" is the ease with which rent-seekers can capture a proportion of public spending. The "concentration of political power" is the extent to which rent-seekers have more political influence than other people. One theoretical prediction is that the effects of the two institutional parameters on income growth and equilibrium corruption are different according to the constraints that are binding at equilibrium. In particular, the effect of judicial quality on growth should be stronger when political power is concentrated. We estimate a system of equations where both corruption and income growth are determined simultaneously and show that income growth is more affected by our proxies for legal and political institutions in countries where political rights and judicial institutions respectively are limited.

Keywords: economic growth; corruption; rule of law; incentive constraint; political power (search for similar items in EconPapers)
JEL-codes: D73 H50 O41 (search for similar items in EconPapers)
Date: 2008-06-01
New Economics Papers: this item is included in nep-dev and nep-pol
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Democracy, Rule of Law, Corruption Incentives, and Growth (2011)
Working Paper: Democracy, rule of law, corruption incentives, and growth (2011)
Working Paper: Democracy, rule of law, corruption incentives and growth (2008)
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