Political economy of anti-corruption reform in two-candidate elections

Abstract

We analyze the effectiveness of some commonly discussed anti--corruption reforms on political corruption, using a theoretical model of competition between two candidates in a probabilistic voting setup. Candidates, who may differ both in their ability to produce the public good, and popularity with voters, propose a tax rate and a public good level. The budget constraint implies that taxes collected must equal the sum of funds used in public good production plus funds stolen by the elected politician. We identify the conditions under which constitutional constraints on policies, higher penalties for corruption, and higher wages for elected politicians increase (or decrease) voters' welfare. We discuss how the asymmetric information and the rigidity of constitutions reduce the effectiveness of the reforms, and how distributional effects of reforms may reduce the voters' support for a welfare--improving reform. Finally, we argue that effective reforms may not be proposed by both corrupt and honest politicians