NBER Working Paper No. w4372

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

This paper presents two propositions about corruption. First, the structure of government institutions and the political process are a very important determinant of the level of corruption. In particular, weak governments which do not control their agencies would lead to ultra-high corruption levels. Second, the illegality of corruption and the need for secrecy make it much more distortionary and costly than its sister activity, taxation. These results may explain why in some less developed countries, corruption is so high and so costly to development.