The political economy of corruption and the role of economic opportunities

In many developing and transition countries, we observe rather high levels of corruption. We argue that the missing political support for anti-corruption policies is due to a lack of economic and financial reforms. Our model is based on the fact that corrupt officials have to pay entry fees to get lucrative positions. In a probabilistic voting model, we show that this, together with the lack of economic opportunities, makes anti-corruption policies less likely. Compared to a reformed economy, more voters are part of the corrupt system and, more importantly, rents from corruption are distributed differently. Economic liberalization increases the support for anti-corruption measures. The additional effect of financial liberalization is ambiguous.