A Two-Layer Parametric Nonlinear Dynamic Model of Corruption Deterrence : Some Policy Results

We study a two-layer parametric nonlinear dynamic model of corruption deterrence with a simple overlapping generations structure. In a series of scenarios simulated, we find that increased resources dedicated to corruption deterrence schemes together with increased fines and higher wage rates produce the lowest level of corruption in the steady state and provide the government with the largest fiscal space for other spending such as infrastructure and education. We find that the marginal effect of wages on the steady state proportion of corrupt officials is positive. This result is surprising as it suggests that decreasing the officials’ wage rates decreases corruption. A significant difference arises in this respect in seminal experimental and empirical work. We find that the corruption deterrence schemes that prove to be effective remain so even when corruption is widespread. A useful elasticity-type condition is derived. Our work highlights the usefulness of fiscal criteria in evaluating corruption deterrence policies