DP13218 | Corruption and Competition

Publication Date

10/05/2018

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Abstract

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 col-lects sufficient taxes, it can curtail corruption by paying for performance of local govern-ment officials. An alternative way to reduce corruption is to introduce competition among local government officials. Difference in taxing ability and the magnitude of competition among government officials can help explain the heterogenous effects of corruption across countries.