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POLICY COMPROMISES: CORRUPTION AND REGULATION IN A DEMOCRACY
Author(s) -
AIDT TOKE S.,
DUTTA JAYASRI
Publication year - 2008
Publication title -
economics and politics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.822
H-Index - 45
eISSN - 1468-0343
pISSN - 0954-1985
DOI - 10.1111/j.1468-0343.2008.00332.x
Subject(s) - allocative efficiency , economics , incentive , language change , productivity , liberalization , democracy , wage , monetary economics , market economy , international economics , macroeconomics , microeconomics , political science , law , art , literature , politics
This paper evaluates the extent of regulation in a democracy with corruption. Elected politicians can restrict entry of firms in exchange for bribes from entrepreneurs. Full liberalization implies free entry and allocative efficiency. Voters re‐elect politicians based on observed performance. We demonstrate that voters agree to tolerate corruption and inefficient regulation; that efficient policies can be promoted by productivity growth; that productivity growth reduces the cost of providing wage incentives; and that corruption is procyclical and economic policy is countercyclical in a corrupt democracy.