Distributional Effects of Corruption When Enforcement is Biased: Theory and Evidence from Bribery in Schools in Bangladesh

50 Pages Posted: 2 Mar 2018 Last revised: 19 Jun 2019

See all articles by M. Shahe Emran

M. Shahe Emran

George Washington University - Department of Economics

Asad Islam

Monash University - Department of Economics

Forhad Shilpi

World Bank - Development Research Group (DECRG)

Date Written: June 17, 2019

Abstract

In many models of corruption where enforcement is unbiased and the official maximizes her income, the rich are more likely to pay bribes for their children's education, implying that corruption reduces educational inequality. We develop models of bribery that reflect the fact that, in developing countries, anti-corruption enforcement is not unbiased, and higher income of a household is associated with higher bargaining power and better quality of institutions. In models of biased enforcement, the rich are less likely to pay bribes, making bribery regressive. The OLS estimates of the effects of household income are likely to find spurious progressivity in the incidence of bribery in schools. We exploit temporary rainfall shocks to provide suggestive evidence on the ability to pay effect, while long-term rainfall differences capture the combined 'poor people' and 'poor area' effects. The IV estimates show that the poor are more likely to pay bribes, and the amount paid does not depend on household income. The evidence rejects the ability to pay and related models based on unbiased enforcement and is consistent with the "refusal to pay model" of bargaining power where the rich decline to pay bribes. "Free schooling'' is free only for the rich, and corruption makes the playing field skewed against the poor.

Keywords: Corruption, Bribes, Schools, Refusal to pay model, deterrence to bribe demand model, Inequality, Income Effect, Bargaining Power, Regressive Effects, Educational Mobility

JEL Classification: O15, O12, K42, I2

Suggested Citation

Emran, M. Shahe and Islam, Asadul and Shilpi, Forhad, Distributional Effects of Corruption When Enforcement is Biased: Theory and Evidence from Bribery in Schools in Bangladesh (June 17, 2019). Available at SSRN: https://ssrn.com/abstract=3125495 or http://dx.doi.org/10.2139/ssrn.3125495

M. Shahe Emran (Contact Author)

George Washington University - Department of Economics ( email )

2115 G Street NW
302 Monroe Hall
Washington, DC 20052
United States

Asadul Islam

Monash University - Department of Economics ( email )

Department of Economics
Monash University
Caulfield East, Victoria
Australia
+61399032783 (Phone)

HOME PAGE: http://users.monash.edu/~asaduli/

Forhad Shilpi

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States
202-458-7476 (Phone)
202-522-1151 (Fax)

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