Regulation and Corruption: Evidence from the United States

Sanchari Choudhury

Oxford Bulletin of Economics and Statistics, 2021, vol. 83, issue 4, 897-934

Abstract: I exploit a panel data set on United States for the time span 1990–2013 to evaluate the causal impact of government regulation on bureaucratic corruption. Despite the stylized fact that corruption and regulation are positively correlated, there is a lack of empirical evidence to substantiate a causal relationship. Using novel data on federal regulation of industries (Al‐Ubaydli and McLaughlin [2015], Regulation and Governance, 11, 109–123), and convictions of public officials from the Public Integrity Section, I apply a stochastic frontier approach to account for one‐sided measurement error in bureaucratic corruption and the Lewbel [2012, Journal of Business and Economic Statistics, 30, 67–80] identification strategy to control for potential endogeneity of regulation. Results are striking. Based on the preferred model, there is evidence of endogeneity of regulation and absence of a causal link between regulation and corruption. However, if any of the above two econometric issues are ignored, evidence of a spurious relationship between corruption and regulation is found.

Date: 2021
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