Working Paper: CEPR ID: DP7071
Authors: Giovanni Immordino; Marco Pagano
Abstract: Stricter laws require more incisive and costlier enforcement. Since enforcement activity depends both on available tax revenue and the honesty of officials, the optimal legal standard of a benevolent government is increasing in per-capita income and decreasing in officials' corruption. In contrast to the "tollbooth view" of regulation, the standard chosen by a self-interested government is a non-monotonic function of officials' corruption, and can be either lower or higher than that chosen by a benevolent regulator. International evidence on environmental regulation show that standards correlate positively with per-capita income, and negatively with corruption, consistently with the model's predictions for benevolent governments
Keywords: corruption; enforcement; legal standards; tollbooth view
JEL Codes: D73; K42; L51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Benevolent regulator's response to increased corruption (G38) | Decrease in legal standards (K49) |
| Self-interested regulator's response to increased corruption (G18) | Legal standards choice (C52) |
| Per capita income (D31) | Optimal legal standard (K13) |
| Corruption (D73) | Legal standards choice (C52) |