Corruption and Reform
The Davidson Institute Working Paper Series No. 55
Posted: 20 Jul 1998
Date Written: June 1996
Countries making the transition to a market economy often experience an increase in corruption along with an increase in growth. This observation is puzzling in the context of current models, which emphasize the destructive nature of corruption. We present a model of corruption and reform which shows that udner some circumstances a particular gradualist reform strategy is optimal. This strategy consists of temporarily relaxing control of corruption in order to provide a windfall to existing bureaucrats, therby gaining their support for a reform effort that will ultimately reduce the distortions stemming from bureaucratic power. Thus, a one-time surge of corruption can be a prelude to a permanently reduced level of corruption in the future, which provides the incentive for high current growth. We illustrate our point with examples from the recent Chinese reform.
JEL Classification: D72, P21, O12
Suggested Citation: Suggested Citation