The Political Economy of Corruption and the Role of Financial Institutions

38 Pages Posted: 29 Oct 2004

See all articles by Christa Hainz

Christa Hainz

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Kira Fuchs

Seminar for Comparative Economics; Ludwig Maximilian University of Munich - Center for Economic Studies (CES)

Date Written: October 2004

Abstract

In transition and developing countries, we observe rather high levels of corruption even if they have democratic political systems. This is surprising from a political economy perspective, as the majority of people generally suffers from high corruption levels. Our model is based on the fact that corrupt offcials have to pay an entry fee to get lucrative positions. In a probabilistic voting model, we show that a lack of financial institutions can lead to more corruption as more voters become part of the corrupt system. Well-functioning financial institutions, in turn, can increase the political support for anti-corruption measures.

Keywords: corruption, financial markets, institutions, development, voting

JEL Classification: D72, D73, O17

Suggested Citation

Hainz, Christa and Fuchs, Kira, The Political Economy of Corruption and the Role of Financial Institutions (October 2004). CESifo Working Paper Series No. 1293. Available at SSRN: https://ssrn.com/abstract=612122

Christa Hainz (Contact Author)

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 81069
Germany

Kira Fuchs

Seminar for Comparative Economics ( email )

Geschwister-Scholl-Platz 1
Munich, Bavaria 80539
Germany

Ludwig Maximilian University of Munich - Center for Economic Studies (CES) ( email )

Schackstr. 4
Munich, 80539
Germany
+49 89 2180 2767 (Fax)

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