ECONOMIC FREEDOM VERSUS POLITICAL FREEDOM: CROSS-COUNTRY INFLUENCES ON CORRUPTION* 

Authors


  • * 

    We would like to thank Rati Ram and a referee for excellent comments. Earlier versions of this paper were presented at the 2003 ‘Tor Vergata’ Conference on Banking and Finance and the Institute of Economics, Zagreb. Remaining errors are our own.

Rajeev K. Goel, Department of Economics, Illinois State University, Normal IL 61790-4200, USA. rkgoel@ilstu.edu

Abstract

Using a well-known index of corruption, this paper examines the determinants of corruption for a large sample of countries. Specifically, the present study brings empirical evidence to bear on the question of whether economic freedom or political freedom serves as a deterrent to corrupt activity. In particular, does greater economic freedom or greater political freedom yield a more ‘clean’ society? Our results show that greater economic freedom seems to matter more in this regard. Examining different components of economic freedom, we find that not all these components are equally effective in reducing corruption. For instance, monetary policy seems to have a stronger influence on the level of corrupt activity in a country than fiscal policy. Robustness of these findings is checked and policy implications are discussed.

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