The draft version of this paper was presented at a seminar on Contemporary Issues in Economic Theory and Policy held at the Department of Economics and Politics, Visva-Bharati, Santinekatan, West Bengal, India, during 14th–16th March 2008.
Fiscal capacity and multiple-equilibria of corruption: Cross-country evidence†
Article first published online: 25 MAY 2010
Copyright © 2010 John Wiley & Sons, Ltd.
Journal of International Development
Volume 24, Issue 1, pages 34–60, January 2012
How to Cite
Munim, J. M. A. (2012), Fiscal capacity and multiple-equilibria of corruption: Cross-country evidence. J. Int. Dev., 24: 34–60. doi: 10.1002/jid.1679
- Issue published online: 18 DEC 2011
- Article first published online: 25 MAY 2010
- fiscal capacity;
- government's benevolence;
- political rights;
- civil liberties
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.