How Does Growth Affect Everyday Corruption?

Exit, Empowerment and Voice in Indian Public Services

Abstract

Economic growth’s effects on government efforts to combat citizen-facing, public-service corruption varies in a puzzling way across services. Over two high-growth decades in India, those services undergoing the largest increases in demand, and therefore in rent-extraction opportunities, saw more robust anti-corruption reforms than did services experiencing weaker or even negative demand growth. In this paper, the authors build theoretical models that can explain why growth induced the state to more aggressively shut down its fastest-growing rent opportunities. They show that the net effect of growth on anti-corruption efforts in a service depends upon the balance of three growth-induced outcomes – two negative and one positive. Exit of richer, high-voice citizens from the service reduces public pressure for reforms, while entry of poorer low-voice citizens enhances opportunities for rent extraction without increasing accountability. Conversely, growth empowers existing service users to demand anti-corruption reforms. The balance between exit, entry and empowerment forces explains why growth leads government to clean up corruption in services that the middle classes and rich continue to use, and concentrates corruption in the services they leave behind. By inducing stronger anticorruption efforts in the services used by richer citizens, growth makes everyday corruption more of a “tax on the poor”. We illustrate how growth disproportionately empowered richer citizens to successfully demand reforms by analyzing changes to the passport service and the railway reservation system. We also validate the model’s main mechanisms statistically through a case study of India’s rural elementary schools, where anti-corruption reforms have lagged. These results suggest that designing services to discourage exit by their richer users could help to harness the anti-corruption benefits of growth for the rest. 

Keywords: Corruption, Economic Growth, Public Services, Voice, Exit, Entry, Anti-corruption reforms, Accountability, State Institutions, Passport issuance, Railway Reservation, Teacher Absenteeism.

JEL Codes: H11, H42, D73, O12, O17