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Fiscal capacity and multiple‐equilibria of corruption: Cross‐country evidence
Author(s) -
Munim Joarder Mohammad Abdul
Publication year - 2012
Publication title -
journal of international development
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.533
H-Index - 66
eISSN - 1099-1328
pISSN - 0954-1748
DOI - 10.1002/jid.1679
Subject(s) - language change , economics , government (linguistics) , revenue , order (exchange) , proposition , monetary economics , finance , art , linguistics , philosophy , literature , epistemology
We test the proposition that higher initial fiscal capacity of a nation strengthens law and order, and therefore, inhibit corruption, and in a multiple‐equilibria setting, the economy will move towards the low‐corruption stable equilibrium. We have found a significant relationship between more initial fiscal capacity and less corruption in a large cross‐section of countries that became independent after World War II. Our findings also suggest that higher initial revenue capacity is a necessary condition but not a sufficient condition to reduce corruption. A government's willingness (benevolence) is also needed to combat corruption. Both of these variables help the economy to converge towards a ‘low‐corruption stable equilibrium’. Copyright © 2010 John Wiley & Sons, Ltd.