POLICY COMPROMISES: CORRUPTION AND REGULATION IN A DEMOCRACY

Toke Aidt and Jayasri Dutta ()

Economics and Politics, 2008, vol. 20, issue 3, 335-360

Abstract: This paper evaluates the extent of regulation in a democracy with corruption. Elected politicians can restrict entry of firms in exchange for bribes from entrepreneurs. Full liberalization implies free entry and allocative efficiency. Voters re‐elect politicians based on observed performance. We demonstrate that voters agree to tolerate corruption and inefficient regulation; that efficient policies can be promoted by productivity growth; that productivity growth reduces the cost of providing wage incentives; and that corruption is procyclical and economic policy is countercyclical in a corrupt democracy.

Date: 2008
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https://doi.org/10.1111/j.1468-0343.2008.00332.x

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Persistent link: https://EconPapers.repec.org/RePEc:bla:ecopol:v:20:y:2008:i:3:p:335-360

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