Distributional Effects of Corruption When Enforcement is Biased: Theory and Evidence from Bribery in Schools in Bangladesh

M. Shahe, Emran and Asadul, Islam and Forhad, Shilpi (2018): Distributional Effects of Corruption When Enforcement is Biased: Theory and Evidence from Bribery in Schools in Bangladesh.

Abstract

In many models of corruption where enforcement is unbiased and the official maximizes her income, the rich are more likely to pay bribes for their children's education, implying that corruption reduces educational inequality. We develop models of bribery that reflect the fact that, in developing countries, anti-corruption enforcement is not unbiased, and higher income of a household is associated with higher bargaining power and better quality of institutions. In models of biased enforcement, the rich are less likely to pay bribes, making bribery regressive. The OLS estimates of the effects of household income are likely to find spurious progressivity in the incidence of bribery in schools. We exploit temporary rainfall shocks to provide suggestive evidence on the ability to pay effect, while long-term rainfall differences capture the combined `poor people' and `poor area' effects. The IV estimates show that the poor are more likely to pay bribes, and the amount paid does not depend on household income. The evidence rejects the ability to pay and related models based on unbiased enforcement, and is consistent with the ``refusal to pay model'' of bargaining power where the rich decline to pay bribes. ``Free schooling'' is free only for the rich, and corruption makes the playing field skewed against the poor.

• Item Type: MPRA Paper
• Language: English
• Keywords: Corruption, Bribes, Schools, Biased Enforcement, Refusal to pay model, deterrence to bribe demand model, Inequality, Income Effect, Bargaining Power, Regressive Effects, Educational Mobility
• Subjects: H - Public Economics > H1 - Structure and Scope of Government; I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development

References

Rose-Ackerman, S (2010), “The Law and Economics of Bribery and Extortion, Annual Review of Law and Social Science 6: 217-236 (2010).

Bandyopadhya, S. and Skoufias, E. (2012). “Rainfall variability, occupational choice, and welfare in rural Bangladesh," Policy Research Working Paper Series 6134, The World Bank.

Banerjee, A.V., R. Hanna, and S. Mullainathan (2012): “Corruption," , the Handbook of Organizational Economics, edited by Robert Gibbons and John Roberts, 1109-1147. Princeton University Press.

Bardhan, P. (1997): “Corruption and Development: A Review of Issues," Journal of Economic Literature, vol. 35(3), 1320-1346.

Basu, Kaushik, Bhattacharya, Sudipto and Mishra, Ajit, 1992. “Notes on bribery and the control of corruption," Journal of Public Economics”, Elsevier, vol. 48(3), pages 349-359, August.

Becker G. S. and N. Tomes (1979), “An Equilibrium Theory of the Distribution of Income and Intergenerational Mobility,”\Journal of Political Economy, vol. 87, no. 6.

Bertrand, M., Djankov, S., Hanna, R. and S. Mullainathan (2007).“Obtaining a Driver's License in India: An Experimental Approach to Studying Corruption.” The Quarterly Journal of Economics, 122(4): 1639-1676, November.

Black, S., P. Devereux, and K. Salvanes (2009), Like Father Like Son? A Note on the Intergenerational Transmission of IQ Scores, Economics Letters, 105, 138-140.

Corbin, C & James J. Heckman, 2016. “Capabilities and Skills," Working Papers 2016-018, Human Capital and Economic Opportunity Working Group.

Currie, Janet, and Douglas Almond. 2011. “Human Capital Development Before Age Five." In Handbook of Labor Economics, edited by Orley C. Ashenfelter and David Card, 1315-1486. Amsterdam: Elsevier B. V.

Di Tella, R. and Schargrodsky, E. (2004).“Do Police Reduce Crime? Estimates Using the Allocation of Police Forces after a Terrorist Attack.”, American Economic Review, 94(1), 115-133.

Emran, M. Shahe and Z. Hou (2013), “Access to Markets and Rural Poverty: Evidence from Household Consumption in China,”Review of Economics and Statistics, May, 2013.

Emran, M. Shahe & Shilpi, Forhad, 2015. "Gender, Geography, and Generations: Intergenerational Educational Mobility in Post-Reform India," World Development, Elsevier, vol. 72(C), pages 362-380.

Emran, M Shahe, & Forhad Shilpi, 2011. "Intergenerational Occupational Mobility in Rural Economy: Evidence from Nepal and Vietnam," Journal of Human Resources, University of Wisconsin Press, vol. 46(2), pages 427-458.

Ferraz, C. and Finan, F. (2008) “Exposing Corrupt Politicians: The Effects of Brazil's Publicly Released Audits on Electoral Outcomes.” The Quarterly Journal of Economics, 123(2): 703–745.

Ferraz, C., Finan, F. and Moreira, D.B. (2012).“Corrupting Learning: Evidence from Missing Federal Education Funds in Brazil”, Journal of Public Economics 96 (9-10): 712-726.

Fisman, R. and Svensson, J. (2007). “Are corruption and taxation really harmful to growth? Firm level evidence.”, Journal of Development Economics, 83(1): 63-75.

Hertz, T, Jayasundera, T., Piraino, P., Selcuk, S., Smith, N. and Verashchagina, A. (2007), “The Inheritance of Educational Inequality: International Comparisons and Fifty-Year Trends”, The B.E. Journal of Economic Analysis and Policy. Volume 7, Issue 2, Pages 1935-1682,

Hsieh ,C.R and Moretti, E. (2006).“Did Iraq Cheat the United Nations? Underpricing, Bribes, and the Oil for Food Program.' The Quarterly Journal of Economics, 121(4):1211-1248.

Hunt, J. and S. Laszlo (2012): “Is Bribery Really Regressive? Bribery's Costs, Benefits and Mechanisms", World Development, 40 (2), 355-372.

Hunt, J. (2007).“How corruption hits people when they are down," Journal of Development Economics, vol. 84(2), pages 574-589.

Kaufmann, D., S. Pradhan and R. Ryterman (1998), New Frontiers in Diagnosing and Combating Corruption". World Bank PREM Notes: Public Sector, October (1998).

Kaufmann, D., Judit M. and F. Recanatini (2005). “How Does Bribery Affect Public Service Delivery? Micro-evidence from Service Users and Public Officials in Peru”. World Bank working paper 4492.

Kolesár, M, Raj Chetty, John N. Friedman, Edward L. Glaeser & Guido W. Imbens, 2014. “Identification and Inference with Many Invalid Instruments," NBER Working Papers 17519, National Bureau of Economic Research, Inc.

Mocan, N (2008), “What Determines Corruption? International Evidence From Micro Data”, Economic Inquiry, 46(4): 493-510.

Mullainathan, S, and E Shafir (2013), Scarcity: Why having Too Little Leans So Much, Harvard University Press.

Noble, Kimberly G and others (2015), ”Family income, parental education and brain structure in children and adolescents”, Nature Neuroscience, 18, pages 773778 (2015).

Olken, B. (2006).“Corruption and the Costs of Redistribution: Micro Evidence from Indonesia.' Journal of Public Economics, 90(4-5):853-870.

Olken, B. (2007). “Monitoring Corruption: Evidence from a Field Experiment in Indonesia." Journal of Political Economy, 115: 200-249.

Olken, B. (2009). “Corruption Perceptions vs. Corruption Reality." Journal of Public Economics 93, (7-8): 950-964.

Olken, B. and Barron, P. (2009). “The Simple Economics of Extortion: Evidence from Trucking in Aceh.” Journal of Political Economy, 117(3): 417-452.

Olken, B., and R. Pande (2011). “Corruption in Developing Countries”, Abdul Latif Jameel Poverty Action Lab.

Plomin, R., and F. Spinath (2004), “Intelligence: Genetics, Genes, and Genomics, Journal of Personality and Social Psychology, 86:1, 112-129.

Rajan, R and Arvind Subramanian (2008), “Aid and Growth: What Does the Cross-Country Evidence Really Show?," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 643-665, November.

Reinikka, R. and Svensson, J. (2004). “Local Capture: Evidence From a Central Government Transfer Program in Uganda." The Quarterly Journal of Economics, 119(2): 679-705.

Rose-Ackerman, Susan (2010), “The Law and Economics of Bribery and Extortion,' Annual Review of Law and Social Science 6: 217-236 (2010).

Rose-Ackerman, Susan (1978). Corruption: A Study in Political Economy. New York: Academic Press, 1978.

Sequeira, S. and Djankov, S. (2010), An Empirical Study of Corruption in Ports, SSRN WP.

Svensson, Jakob, (2003).“ Who Must Pay Bribes and How Much? Evidence from A Cross Section of Firms”. The Quarterly Journal of Economics 118 ( 1), 207—230.

World Bank (2010), Silent and Lethal How Quiet Corruption Undermines Africa's Development Effort, IBRD/ World Bank, Washington DC.