Policy compromises: corruption and regulation in a dynamic democracy
This paper evaluates the extent of regulation in a democracy with political corruption. Elected politicians can restrict entry of firms in exchange for bribes from entrepreneurs. Full liberalisation implies free entry and allocative efficiency and is supported by a majority of voters. Voters reelect politicians based on observed performance. We study Markov-perfect equilibria of the resulting game, and demonstrate that voters agree to tolerate some corruption and inefficient regulation in political equilibrium. Efficient policies can be promoted by productivity growth. Political corruption entails excessive stabilization of aggregate fluctuations.
Historical background and political development structure, politics and ideology trade unions and political parties the decline of working class politics? union-government relations the politics of collective bargaining unions, politics and the new working class conclusions - unions, politics and the future.