Leniency, Asymmetric Punishment and Corruption: Evidence from China

Abstract

Fostering whistleblowing through leniency and asymmetric sanctions is regarded as a potentially powerful anti-corruption strategy in the light of its success in busting cartels. The US Department of Justice started a pilot program of this kind in 2016. It has been argued, however, that introduced in China in 1997, these policies did not help against corruption. We map the evolution of the Chinese anti-corruption legislation and aggregate enforcement data, documenting a large and stable fall in prosecuted cases after the 1997 reform. The fall is consistent with reduced corruption detection, but under specific assumptions also with improved deterrence. To resolve the ambiguity, we collect and analyze a random sample of case files from corruption trials. Results point indeed at a negative effect of the 1997 reform on corruption detection and deterrence, but plausibly linked to its poor design: contrary to what theory prescribes, it increased leniency also for bribe-taking bureaucrats that cooperate after being denounced, enhancing their ability to retaliate against whistleblowing bribe-givers.