The Political Economy of Corruption

By Arvind K. Jain | Go to book overview

Notes

The views expressed in this chapter are those of the authors and do not necessarily represent those of the IMF or IMF policy. The authors wish to thank Emanuele Baldacci, Luiz De Mello, Gabriela Inchauste, Arvind K. Jain, and Luc Leruth for their comments. The usual disclaimer applies.

1
Governments provide a wide range of services in social sectors, as measured by intermediate health care and education indicators (e.g. immunization and school enrollment) and outcomes (e.g. literacy and mortality).
2
Government revenues are lower according to these two models because different government agencies act as independent rent-seeking, monopolist providers of complementary goods and services or because of corrupt and extortionist tax inspectors.
3
Alesina (1999) discusses this "vicious cycle" in developing countries and contrasts it with a "virtuous cycle" in developed countries.
4
Kaufmann, Kraay, and Zoido-Lobatón (1999a) test a simple association between two social indicators and various measures of governance.
5
This is similar to Alam's (1989, 1990) model, where managers increase their illicit revenues by reducing output. The result is also consistent with studies of benefit incidence of public social spending, which point to significant leakages. Benefits from public spending disproportionately accrue to the rich; the poor simply do not utilize public services as intensively as the rich, despite the fact that the poor tend to have lower levels of health care and education achievements (Castro-Leal et al. 1999, Davoodi and Sachjapinan 2001). Corruption, of course, is not the only reason for this leakage.
6
See, for example, Hanushek (1995) and Filmer, Hammer, and Pritchett (1998).
7
Kaufmann and Wei (1999) also report that the efficient-grease hypothesis is not supported by data.
8
The CIET social audits are available via the Internet: www.ciet.org.
9
Available via the Internet: www.unibas.ch/wwz/wifor/staff/bw/survey/index.html.
10
In the survey, corruption was defined as irregular payments made to officials, and corruption uncertainty as firms asked to pay more, in addition to irregular payments. Respondents were required to rate their responses from 1 (worst) to 6 (best). Respondents were also asked to rate the quality of health care services and efficiency of government services provided in their country, following the same scale. For ease of interpretation, this paper rescales the corruption and uncertainty indices from 1 (best) to 6 (worst), with higher values of each index representing higher corruption and higher uncertainty.
11
See Campos, Lien, and Pradhan (1999) and Wei (1997) for the concepts of corruption unpredictability and corruption uncertainty, both of which are found to have adverse impact on development.
12
The regression produces an adjusted R-squared of 0.13, with variations explained mostly by corruption and not by the quality of health care provision:

Child mortality = 178.8 + 22.9* (Corruption) -9.1* (Quality),

(5.50) (1.75) (-0.78)

where t-statistics are in parentheses. The regression does not control for other determinants of child mortality, hence the low R-squared, and does not address the endogeneity of corruption or reverse causality. These issues are discussed in section four of this chapter.

13
Each cell is calculated as one standard deviation around the mean; the results are the same when two standard deviations are used. Child mortality rates refer to under-age-five mortality rates.

-133-

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The Political Economy of Corruption
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • Figures vii
  • Tables viii
  • Part I - Governance and Corruption 1
  • 1 - Power, Politics, and Corruption 3
  • 2 - The Definitions Debate 11
  • Notes 29
  • Part II - Political Systems and Corruption 33
  • 3 - Political Corruption and Democratic Structures 35
  • 4 - Why Do Voters Support Corrupt Politicians? 63
  • Part III - Policy and Political Outcomes 87
  • 5 - Corruption, Growth, and Public Finances 89
  • Notes 107
  • 6 - Corruption and the Provision of Health Care and Education Services 111
  • Notes 133
  • Appendix 136
  • Bibliography 138
  • 7 - Historical Antecedents of Corruption in Pakistan 142
  • Bibliography 154
  • Part IV - Solutions and Future Research 155
  • 8 - Measuring Corruption 157
  • Appendix 176
  • Bibliography 177
  • 9 - Legislating Against Corruption in International Markets 180
  • Notes 207
  • Bibliography 212
  • 10 - Controlling Power and Politics 214
  • Bibliography 219
  • Index 220
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