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

31 Pages Posted: 6 Oct 2020

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)

Multiple version iconThere are 2 versions of this paper

Date Written: October 1, 2020

Abstract

In many models of corruption where enforcement is unbiased, 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, anticorruption 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. We find 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.

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 (October 1, 2020). Economica, Vol. 87, Issue 348, pp. 985-1015, 2020, Available at SSRN: https://ssrn.com/abstract=3704394 or http://dx.doi.org/10.1111/ecca.12337

M. Shahe Emran (Contact Author)

George Washington University - Department of Economics ( email )

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Asadul Islam

Monash University - Department of Economics ( email )

Department of Economics
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Forhad Shilpi

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

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