Good governance Topic: Corruption
Accountability and corruption: Political institutions matter
Lederman, Loayza & Soares (2005)
This study uses a cross-country panel to examine the determinants of corruption, paying
particular attention to political institutions that in-crease accountability. Our results confirm the
role of political institutions in determining the prevalence of corruption. Democracies,
parliamentary systems, political stability, and freedom of press are all associated with lower
corruption.
Introduction
Political mechanisms that increase political accountability, either by encouraging punishment of
corrupt individuals or by reducing the informational problem related to government activities,
tend to reduce the incidence of corruption. Likewise, institutions that generate a competitive
environment in the provision of public services tend to reduce the extraction of rents, therefore
reducing corruption. We show that common results of the previous empirical literature – related
to openness and legal tradition – do not hold once political variables are taken into account
The nature of corruption
Corruption as a crime
While the di erent types of ‘‘common’’ crimes are highly correlated in a cross-section of
countries, none of them are significantly correlated with corruption.
The political determinants of corruption
The problem of corruption in the public sphere is almost a direct con-sequence of the nature of
government interventions. Transactions within the government always imply some asymmetry of
information between citizens and politicians and, at the same time, governments intervene
precisely in situations where there are market failures, such that private provision is not regarded
as a viable alternative. Corruption arsis from the existence of rents and monitoring failures. The
specific design of political institutions will a ect corruption mainly through two channels:
- Political accountability: any mechanism that increases political accountability, either by
encouraging the punishment of corrupt individuals or by reducing the informational
problem related to government activities, tends to reduce the incidence of corruption.
- The provision of public goods: institutions generating a competitive environment in the
provision of the same public service tend to reduce the extraction of rents, thus reducing
corruption via a straightforward economic competition mechanism.
Political accountability and corruption
The central argument is that accountability allows for the punishment of politicians that adopt
‘‘bad policies,’’ thus aligning politicians’ preferences with those of their citizens. Three main
characteristics:
, - Political competition: In brief, the existence of fair elections guarantees that politicians
can, to some extent, be held liable to the actions taken while in public office. Any ce. Any
institution or rule that provides a punishment mechanism for politicians, such as the loss
of elections or the possibility of being forced out of office. Any ce, can induce politicians to
improve their behavior by aligning their own interests with those of their constituents.
- Check and balances: separation of powers together with checks and balances help prevent
abuses of authority, with di erent government bodies disciplining each other in the
citizens’ favor. As long as it is not in the interest of one of the government branches to
collude with the other branches, separation of powers creates mechanisms to police and
punish government office. Any cials that misbehave, thus reducing the equilibrium level of
corruption.
- Transparency: Depends crucially on freedom of press and expression, and on the degree
of decentralization in the system. Freedom of press, so that right-and wrong-doings on
the part of the government can be publicized, tends to reduce the informational problem
between principals (citizens) and agents(governments), thus improving governance.
Transparency can also be improved by decentralization, since, because of easier
monitoring, informational problems are less severe at the local level.
Structure of provision of public goods
Corruption usually entails the ex-traction of rent by someone who is vested with some form of
public power. When several government agencies provide exactly the same service, and citizens
can freely choose where to purchase it, competition among agencies will reduce corruption. The
other extreme is when di erent government agencies provide complementary services. This
occurs, for example, when several licenses are required for a particular activity or di erent levels
of government legislate over the same activity. In this case, power is shared among di erent
bureaucracies that extract rents from the same source. This institutional setup increases
corruption and the ineffice. Any ciency of the system.
Decentralization will thus reduce corruption as long as power is decentralized into units that can
substitute (or compete with) one another and that do not have overlapping responsibilities.
Existing empirical evidence
We assume that the political macrostructure determines the incentives facing politicians and
high-level office. Any cials, and that the reaction of these agents propagates the e ects throughout the
lower levels of government.
Empirical approach
Variables
Political variables:
- Democracy: As discussed previously, we expect a negative e ect of democracy on the
incidence of corruption.
- Presidential democracy: Since the legislatures in parliamentary systems can remove the
leader s of the executive branch more readily than presidential systems, we expect this
Accountability and corruption: Political institutions matter
Lederman, Loayza & Soares (2005)
This study uses a cross-country panel to examine the determinants of corruption, paying
particular attention to political institutions that in-crease accountability. Our results confirm the
role of political institutions in determining the prevalence of corruption. Democracies,
parliamentary systems, political stability, and freedom of press are all associated with lower
corruption.
Introduction
Political mechanisms that increase political accountability, either by encouraging punishment of
corrupt individuals or by reducing the informational problem related to government activities,
tend to reduce the incidence of corruption. Likewise, institutions that generate a competitive
environment in the provision of public services tend to reduce the extraction of rents, therefore
reducing corruption. We show that common results of the previous empirical literature – related
to openness and legal tradition – do not hold once political variables are taken into account
The nature of corruption
Corruption as a crime
While the di erent types of ‘‘common’’ crimes are highly correlated in a cross-section of
countries, none of them are significantly correlated with corruption.
The political determinants of corruption
The problem of corruption in the public sphere is almost a direct con-sequence of the nature of
government interventions. Transactions within the government always imply some asymmetry of
information between citizens and politicians and, at the same time, governments intervene
precisely in situations where there are market failures, such that private provision is not regarded
as a viable alternative. Corruption arsis from the existence of rents and monitoring failures. The
specific design of political institutions will a ect corruption mainly through two channels:
- Political accountability: any mechanism that increases political accountability, either by
encouraging the punishment of corrupt individuals or by reducing the informational
problem related to government activities, tends to reduce the incidence of corruption.
- The provision of public goods: institutions generating a competitive environment in the
provision of the same public service tend to reduce the extraction of rents, thus reducing
corruption via a straightforward economic competition mechanism.
Political accountability and corruption
The central argument is that accountability allows for the punishment of politicians that adopt
‘‘bad policies,’’ thus aligning politicians’ preferences with those of their citizens. Three main
characteristics:
, - Political competition: In brief, the existence of fair elections guarantees that politicians
can, to some extent, be held liable to the actions taken while in public office. Any ce. Any
institution or rule that provides a punishment mechanism for politicians, such as the loss
of elections or the possibility of being forced out of office. Any ce, can induce politicians to
improve their behavior by aligning their own interests with those of their constituents.
- Check and balances: separation of powers together with checks and balances help prevent
abuses of authority, with di erent government bodies disciplining each other in the
citizens’ favor. As long as it is not in the interest of one of the government branches to
collude with the other branches, separation of powers creates mechanisms to police and
punish government office. Any cials that misbehave, thus reducing the equilibrium level of
corruption.
- Transparency: Depends crucially on freedom of press and expression, and on the degree
of decentralization in the system. Freedom of press, so that right-and wrong-doings on
the part of the government can be publicized, tends to reduce the informational problem
between principals (citizens) and agents(governments), thus improving governance.
Transparency can also be improved by decentralization, since, because of easier
monitoring, informational problems are less severe at the local level.
Structure of provision of public goods
Corruption usually entails the ex-traction of rent by someone who is vested with some form of
public power. When several government agencies provide exactly the same service, and citizens
can freely choose where to purchase it, competition among agencies will reduce corruption. The
other extreme is when di erent government agencies provide complementary services. This
occurs, for example, when several licenses are required for a particular activity or di erent levels
of government legislate over the same activity. In this case, power is shared among di erent
bureaucracies that extract rents from the same source. This institutional setup increases
corruption and the ineffice. Any ciency of the system.
Decentralization will thus reduce corruption as long as power is decentralized into units that can
substitute (or compete with) one another and that do not have overlapping responsibilities.
Existing empirical evidence
We assume that the political macrostructure determines the incentives facing politicians and
high-level office. Any cials, and that the reaction of these agents propagates the e ects throughout the
lower levels of government.
Empirical approach
Variables
Political variables:
- Democracy: As discussed previously, we expect a negative e ect of democracy on the
incidence of corruption.
- Presidential democracy: Since the legislatures in parliamentary systems can remove the
leader s of the executive branch more readily than presidential systems, we expect this
