The Political Economy of Corruption: A Philippine Illustration

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The Political Economy of Corruption:
A Philippine Illustration

Abstract

This research paper explores the nature, causes, and consequences of corruption as it pertains to entire regimes. Grand corruption is modeled as a type of unproductive rent-seeking at the highest levels of government. The economic costs of corruption are assumed to increase in the decentralization (and relaxation) of its governance, increase convexly in the percentage extracted, and decreasing in the opportunities for productive rent-seeking. Combining these assumptions with the benefits of corruption yields the results that optimal corruption revenues are increasing in greed of the regime and in economic opportunities but that the economic costs of corruption may be highest in the least avaricious regime. The theory is illustrated with a stylized account of corruption in three Philippine administrations, from 1973-1998. Policy implications are discussed, including the role of the economist in making corruption less attractive.

Introduction

Corruption, according to Rose-Ackerman (1996, p. 365), “occurs when officials use their positions of public trust for private gain.” It is “an extralegal institution used by individuals or groups to gain influence over the bureaucracy” (Leff, 1964, p. 8). That is, corruption involves transactions, typically between private parties and public officials, designed to manipulate the machinery of government. It may be of the permission-seeking type (quotas, licenses, permits, passports, and visas), the enforcement avoiding type (tax evasion, illegal pollution) or the competition-harassing type.

Corruption is closely associated with bribery that has been recognized since the 15 century B.C. as “a gift that perverts judgment” (Noonan, 1984, p. 12). Most of the literature on corruption and bribery is implicitly applied to lower level public officers (e.g. Mocan, 2008).

This essay explores the nature, causes, and consequences of corruption as

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