DP13218 Corruption and Competition

Author(s): Franklin Allen, Jun Qian, Lin Shen
Publication Date: October 2018
Keyword(s): Competition, Corruption, institutions, taxes, user fee
JEL(s): H0, P5
Programme Areas: Public Economics, Financial Economics, Development Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13218

An interesting aspect of corruption is that its damaging effects on economic performance differ significantly across countries. In this paper, we show that if a central government collects sufficient taxes, it can curtail corruption by paying for performance of local government officials. An alternative way to reduce corruption is to introduce competition among local government officials. Difference in axing ability and the magnitude of competition among government officials can help explain the heterogenous effects of corruption across countries.