Instability and Incentives for Corruption

Davin Chor, Quoc-Anh Do and Filipe Campante

Macroeconomics Working Papers from East Asian Bureau of Economic Research

Abstract: We investigate the relationship between corruption and political stability, from both theoretical and empirical perspectives. We propose a model of incumbent behavior that features the interplay of two effects : A horizon effect, whereby greater instability leads the incumbent to embezzle more during his short window of opportunity; and a demand effect, by which the private sector is more willing to bribe stable incumbents. The horizon effect dominates at low levels of stability, since firms are unwilling to pay high bribes and unstable incumbents have strong incentives to embezzle, whereas the demand effect gains salience in more stable regimes. Together, these two effects generate a nonmonotonic, U-shaped relationship between total corruption and stability. On the empirical side, we find a robust U-shaped pattern between country indices of corruption perception and various measures of incumbent stability, including historically-observed average tenures of chief executives and governing parties : Regimes that are very stable or very unstable display higher levels of corruption when compared to those in an intermediate range of stability. These results suggest that minimizing corruption may require an electoral system that features some reelection incentives, but with an eventual term limit.

Keywords: corruption; Political Stability; Incumbent Tenure; Term Limits (search for similar items in EconPapers)
JEL-codes: D72 E62 O11 (search for similar items in EconPapers)
Date: 2008-01
References: Add references at CitEc
Citations: View citations in EconPapers (8)

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Related works:
Journal Article: INSTABILITY AND THE INCENTIVES FOR CORRUPTION (2009)
Working Paper: Instability and the Incentives for Corruption (2009)
Working Paper: Instability and the Incentives for Corruption (2009)
Working Paper: Instability and the Incentives for Corruption (2005)
Working Paper: Instability and the Incentives for Corruption
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