INSTABILITY AND THE INCENTIVES FOR CORRUPTION

• Published in: Economics and politics Vol. 21; no. 1; pp. 42 - 92
• Main Authors: CAMPANTE, FILIPE R., CHOR, DAVIN, DO, QUOC-ANH
• Format: Journal Article
• Language: English
• Published: Oxford, UK Blackwell Publishing Ltd 01.03.2009; Wiley
• Subjects: Bribery; Corruption; Criminology; Economic theory; Economics and Finance; Electoral Systems; Humanities and Social Sciences; Incentives; Incumbency; Political economy; Political instability; Political science; Political stability; Politics; Private Sector; Stability; Studies; Tenure; Term limitations; Term Limits; Incumbency; Private Sector; Political Corruption; Political Ethics; Public Sector; Political Stability; Bribery
• ISSN: 0954-1985; 1468-0343
• DOI: 10.1111/j.1468-0343.2008.00335.x

We investigate the relationship between corruption and political stability, from both theoretical and empirical perspectives. We propose a model of incumbent behavior that features the interplay of two effects: a horizon effect, whereby greater instability leads the incumbent to embezzle more during his short window of opportunity, and a demand effect, by which the private sector is more willing to bribe stable incumbents. The horizon effect dominates at low levels of stability, because firms are unwilling to pay high bribes and unstable incumbents have strong incentives to embezzle, whereas the demand effect gains salience in more stable regimes. Together, these two effects generate a non‐monotonic, U‐shaped relationship between total corruption and stability. On the empirical side, we find a robust U‐shaped pattern between country indices of corruption perception and various measures of incumbent stability, including historically observed average tenures of chief executives and governing parties: regimes that are very stable or very unstable display higher levels of corruption when compared with those in an intermediate range of stability. These results suggest that minimizing corruption may require an electoral system that features some re‐election incentives, but with an eventual term limit.