Gerard Roland (University of California, Berkeley): Erosion of State Power, Corruption Control, and Political Stability

Gerard Roland (University of California, Berkeley): Erosion of State Power, Corruption Control, and Political Stability

Co-authors: Weijia Li (Monash University) and Yang Xie (University of California, Riverside)

Abstract
How do corruption and the state apparatus interact, and how are they connected to the political and economic dimensions of state capacity? Motivated by historians' analysis of powerful empires, we build a model that emphasizes the corrosive effect of corruption on state power. Under general assumptions about fat-tailed risk, we show that the optimal response for the head of the state apparatus is an endogenous lexicographic rule whereby local corruption is maintained at such a level that no erosion of state power is tolerated. Comparative statics shows the impacts of additional risk of crisis on corruption tolerance as well as the complementarity between personalistic rule and corruption. Implications of corruption at the head of the state apparatus are also analyzed. We also investigate the conditions under which deviation from the lexicographic rule, over-tolerance of corruption, and erosion of state power become possible, showing a non-monotonic relationship in the relation between state power and corruption across different levels of fiscal capacity. The main results of the model are robustly consistent with empirical patterns based on recent cross-country panel-data.

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