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Fiscal capacity and multiple-equilibria of corruption: Cross-country evidence


  • Joarder Mohammad Abdul Munim

    Corresponding author
    1. ShahJalal University of Science and Technology, Sylhet, Bangladesh
    • Department of Economics, ShahJalal University of Science and Technology, Sylhet-3114, Bangladesh.
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  • 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.


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.