Do "Clean Hands" Ensure Healthy Growth? Theory and Practice in the Battle Against Corruption

Raffaella Coppier, Mauro Costantini () and Gustavo Piga ()
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Raffaella Coppier: Department of Economic and Financial Institutions, University of Macerata, Macerata (MC), Italy

No 238, Economics Series from Institute for Advanced Studies

Abstract: This paper analyzes the existing relationship between economic growth and the monitoring of corruption and examines the possible outcome of the implementation of a State reform in order to weed out corruption. Growth is always higher when monitoring is high and therefore corruption eradicated. But growth declines when monitoring against corruption is not too high, say intermediate, so much that it makes an equilibrium with corruption and little monitoring a more growth-enhancing solution. It is also stressed that when reforms to combat corruption appear to be implausible, they tend to curb most productive investments. The model is estimated using a dynamic panel data approach for Italy. Italy has been plagued by corruption and in the late 80s and early 90s several scandals erupted which led to the well-known "Clean Hands" (Mani pulite) inquiries. Empirical results support the theoretical model.

Keywords: Corruption; growth; reform; panel data (search for similar items in EconPapers)
JEL-codes: C33 D73 K42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fdg and nep-reg
Date: 2009-05

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Persistent link: http://EconPapers.repec.org/RePEc:ihs:ihsesp:238

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