Allingham, M.E., and A. Sandmo, “Income Tax Evasion: A Theoretical Analysis,” Journal of Public Economies. Vol. 1, No. 3-4 (November 1972), pp. 323–338.
Baumol, “Entrepreneurship: Productive, Unproductive and Destructive,” Journal of Political Economy, 1990, Vol. 98, No. 5, pp. 893–921.
Harsch, Ernest, “Accumulators and Democrats: Challenging State Corruption in Africa,” The Journal of Modern African Studies, 31, 1 (1993), pp. 31–48.
Kautilya, Arthashastra (New Delhi: Penguin Books, 1991).
Murphy, Kevin M., Shleifer, Andrei, and Vishny, Robert, “The Allocation of Talent. Implication for Growth,” Quarterly Journal of Economics, May 1991.
Musgrave, Richard A., “The Voluntary Exchange Theory of Public Economy,” Quarterly Journal of Economics, Vol. 53, No. 2, pp. 213–237 (February 1938).
Wong, Kar-Yiu, “Inflation, Corruption, and Income Distribution: The Recent Price Reform in China,” Journal of Macroeconomics (Winter 1992), Vol. 14, No. 1, pp. 105–123.
Invited lecture given at the XIII Latin American Meeting of the Econometric Society, Caracas, Venezuela, August 4, 1994. An earlier version of this paper was presented at the CEPR/STEP/Universita di Bologna Conference on “The Economics of Organized Crime,” Bologna, Italy, 11-12 June 1993. The earlier version is being published in Fiorentini & Peltzman, The Economics of Crime (Cambridge University Press, forthcoming). The views expressed are strictly personal. They do not necessarily reflect official Fund positions. Comments received from Ke-young Chu, Christopher Clague, A. Premchand, Partho Shome, Howell Zee, and Vito Luigi Tanzi are much appreciated. They are not responsible for the conclusions reached.
It has been reported that the process of price deregulation is creating opportunities for corruption. See Wong (1992).
Without this assumption, one could not defend a corrective role for the state. The definition of the social welfare or the public interest, raises difficult theoretical and practical questions ignored here. For the classic treatment of the theoretical difficulties, see Arrow (1951). See also the discussion of a social welfare function in Mueller (1989, pp. 384-407).
See Theobald (1990, p. 47). Max Weber fundamental work is in Economy and Society (1978 edition), in two volumes. For a discussion of the characteristics of a modern bureaucracy, see especially Chapter XI, Volume 2, pp. 956-1005.
For this reason, the fact that developing countries have tax levels much lower than industrial countries does not imply that the government plays a smaller role in them.
Dennis C. Mueller’s book, op. cit., is probably the best source on that literature. Issues such as voting rules, multiparty systems, rent-seeking activities and so forth are the essence of the public choice literature.
The title of the English manuscript is “Danes are Like That.” The published version is in Danish.
For example, tips or bribes may become necessary to get a telephone hookup, to get quickly the results of blood tests, to get admission to schools or hospitals, to speedily clear goods at Customs, to get import licenses; in some countries, even to get train and plane tickets, and so forth. David Remnick reports that in the Soviet Union even the access to morgues or coffins by dead bodies required the payment of bribes. See Remnick, pp. 184-185.
Interestingly enough the word privacy is very difficult to translate in other languages. Translations generally do not render the precise English meaning.
The interpretation given in this paper to that concept is not the same as that given by Coleman. Here we emphasize the social capital as it concerns the individual rather than society.
Writing more than two thousand years ago, Kautilya (Prime Minister of a.state in northern India) wrote in the Arthashastra (New Delhi: Penguin Books, 1991) that “just as it is impossible not to taste honey or poison that one may find at the tip of one’s tongue, so it is impossible for one dealing with government funds not to taste, at least little bit, of the King’s wealth.” The quotation is on p.281.
There is, of course, some economic literature on it but much less than one would have expected from the importance of the phenomenon.
In countries without a free press, of course, newspapers may have been prevented to report on it.
See, for example, the various definitions given on page 2 of Theobald’s book, op.cit. or in Klitgaard (1988. pp. 21-24). A famous definition is the one given by the Indian Penal Code and reported in Goode (1984, pp. 310-311). According to that code, a person is guilty of corruption who “being or expecting to be a public servant, accepts, or obtains, or agrees to accept, or attempts to obtain from any person, for himself or for any other person, any gratification whatsoever, other than legal remuneration, as a motive or reward for doing or forbearing to do any official act or for showing or forbearing to show, in the exercise of his official functions, favor or disfavor to any person or for rendering or attempting to render, any service or disservice to any person.”
This already points to the difficulty faced when the behavior expected from the moral or social code conflicts with that from the administrative rule. Saying that the administrative rule should always prevail opens up a lot of other difficulties not discussed here.
This controversy has usually related to major macroeconomic decisions such as the growth of the money supply, the size of the fiscal deficit, and so forth. However, in recent years the public administration literature has also shown a distinct preference for rule-based administrations.
Perhaps this explains why some countries apply strict objective criteria for promotions (years of service, specific educational achievements, etc.) while others rely on the judgement of the supervisors as to the performance of their subordinates. In general Anglo-Saxon countries seem to prefer the latter option while countries such as Japan, France, Italy and some others seem to prefer a system based on more objective criteria, such as seniority, education, etc.
Some writers have argued that corruption can contribute to growth when existing regulations are too rigid and too stifling. Presumably corruption is the equivalent of introducing discretion in the application of the regulations. The same argument has been made about the contribution of the underground economy to growth. By getting around the many government-imposed restrictions, underground activities are supposed to give the economy a dynamism that it would otherwise not have. See various papers in Tanzi (1982).
It has also been reported that in some Asian countries members of parliament or other public sector employees are at times given envelopes with cash from businessmen, not for any specific immediate favors but for possible future favors (Pye, 1985).
It is worthwhile to reflect on why arm’s length relationships are not fully operative in Japan or why the privatization of state enterprises is proving so difficult in previously planned economies. The role of personal relationships is clearly important.
This is, of course, a big assumption which is unlikely to reflect reality in many cases. The corrective role of the state relates to the allocation of resources, the redistribution of income, and the stabilization of the economy.
For the public works budget a key question is whether it is only its allocation that is affected or its size. It is possible that more spending is allocated to investment projects because they allow for the transfer of large amounts through bribes. There is a strong suspicion in some countries that capital spending is often inflated by kickbacks. See (Tanzi 1991, chapter 3). It is now evident that a substantial share of Italy’s public investment budget, which had been one of the highest among the OECD countries, was de facto a transfer payment to political parties and to individuals. To capitalize on this aspect in 1993, the Ciampi Government tried to reduce the budgetary allocations for capital spending by asking the various ministries to renegotiate public works contracts so as to remove the inflating effects of bribes.
In Italy, these individuals are often referred to as “pacchi raccomandati,” i.e., registered packages which always reach their destination. A recent book has documented the extent to which nepotism has been prevalent in the Italian public life of recent years. See Locatelli and Martini, 1991. The English translation of the title of the book is: My Father Sends Me.
For example, Remnick (1994, p. 184) reports that in the Soviet Union: “… even high Party positions were for sale. The magazine Smena (“Change”) reported that the position of regional Party secretary cost a bribe of $150,000, and an Order of Lenin … cost anywhere from $165,000 to $750,000.”
This may explain why some countries have at times introduced quotas for the less privileged.
In other words, corruption is likely to increase the capital output ratio or the total cost of providing government services. It should probably enter as a variable in production functions especially when its impact is changing over time.
In a powerful book, MacMullen (1988) has argued that the Roman Empire declined because, due to widespread corruption, the government lost control over its instruments of policy.
Campbell (1991) has reported that, “In the USSR at the end of the eighties about 18 million households had telephones, while there were 15 million households on the waiting list for them. The people who finally get a telephone installed tend to be those with special political influence or those who can offer bribes.” p.71. See also the chapter by Grossman on the USSR in Tanzi (1982).
South China Morning News (October 26, 1993 p. 1) has reported the Chinese government announcement of an active corruption crackdown “to halt the collection of illicit payments from among the mainland’s staggering 1.11 million categories of government fees.”
Sandbrook has reported a speech by President Hobuto Sese Seko to Zairian civil servants in which he stated: “if you want to steal, steal a little in a nice way.” (See Sandbrook, 1986, p. 95).
Citing once again from Remnick’s book: “That was one of the most degrading facts of Soviet life: it was impossible to be honest” (p. 185).