Working Paper: CEPR ID: DP13218
Authors: Franklin Allen; Jun Qian; Lin Shen
Abstract: An interesting aspect of corruption is that its damaging effects on economic performance differ significantly across countries. In this paper, we show that if a central government col-lects sufficient taxes, it can curtail corruption by paying for performance of local govern-ment officials. An alternative way to reduce corruption is to introduce competition among local government officials. Difference in taxing ability and the magnitude of competition among government officials can help explain the heterogenous effects of corruption across countries.
Keywords: corruption; institutions; competition; taxes; user fee
JEL Codes: H0; P5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Central government tax revenues (H29) | Performance-based pay (J33) |
| Performance-based pay (J33) | Reduced corruption (H57) |
| Competition among local government officials (H79) | Reduced corruption (H57) |
| Competition among local government officials (H79) | Efficient service provision (L84) |
| Taxing ability and competition (H29) | Heterogeneous effects of corruption (D73) |
| Higher taxing ability (H29) | Less severe impacts from corruption (F69) |
| Competitive environments (L13) | Less severe impacts from corruption (F69) |