Until now, in fact, in terms of the fight against corruption, some interventions designed to impact on this general feeling of distrust proved futile, as well as damaging and worst evil that you wanted to care: Just think about that river in full of circulars, directives, rules of standardization, procedures, protocols, and detailed instructions, they would have to express the goodness with geometric precision of the services offered to users. The only result achieved was, in fact, diametrically opposed to that pursued: rather than get the reassurance of the city was severely impaired the activity of insiders, drowned, at least half of their working day, in the bureaucracy, paradoxically have ended up strengthening the responsibility more towards the auditors in respect of users. A phenomenon that has come to fuel the growth of a number of concretions bureaucratic overlap and duplication of skills that generate irresponsibility and eventually impunity.

1. TABLE OF CONTENTS
Causes and consequences
of corruption
1
Corruption: “oil” or “sand” in the system?
Corruption as a problem of governance
Some methodological considerations
Corruption and political institutions
Quality of regulation and economic competition
Size of public sector and budgetary expenditure
Corruption and economic development
Corruption and cultural aspects

2. TABLE OF CONTENTS
Causes and consequences
of corruption
The negative judgement towards corruption derives primarily from two considerations: first, corruption
heavily damages any community suffering from it and, second, corruption has consequences that we may
define, broadly speaking, of a moral nature, partly connected with the sense of injustice that corruption
generates among honest people and affecting the very fabric of society and political and economic
mechanisms.
Moral and economic aspects are inter-connected: in fact, while corruption contributes to create a climate of
mistrust among citizens (a “moral” consequence of corruption), such mistrust also has a negative impact on
the economy, acting as an obstacle to the development of commercial transactions.
However, once considered what we have just undelined above, it is useful to consider the two issues
separately. In the following, namely, we will focus primarily on the economic consequnces of corruption,
while only a final paragraph will be devoted to other considerations.
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3. TABLE OF CONTENTS
Causes and consequences
of corruption
The difficulties encountered in such a research can be attributed to the fact that causes and effects of
corruption are rather complex and difficult to identify separately, not to mention a great number of other
“noise” factors.
For instance, one can think that a high level of corruption would certainly damage economic activities and
would therefore naturally be associated with a modest level of income per capita. The opposite, however,
can be true as well, as it is precisely the poorest countries, having less resources, that would have the
smaller chance to be able to fight corruption effectively.
Moreover, it is entirely possible that a third factor, such as a historically inefficient public administration
system, causes both high corruption and low income per capita.
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4. TABLE OF CONTENTS
Corruption: “oil” or “sand” in the system?
Nowadays consensus on defining corruption as harmful to society has been reached, but this is not always
been the case.
The view that cost-benefit analysis may not just be applied to corruption as to investments, and that, in any
case, the balance cannot be but negative, has not been established until the 1970s.
In fact, a different, and somehow sympathetic, vision had at that time a certain success. Stepping out from
utilitarian assumptions, such a philosophy ignored “moral” aspects of corruption and maintained that, should
the public governance system be inefficient, corruption can play the role of a “lubricant” and facilitate the
movement of the “gears” of bureaucracy.
Consider, for example, a country where any citizen, in order to start a new business, must wait for a long time,
due to the inefficiency of the responsible public body.
The long wait is an apparent obstacle to free economic activity and affects welfare. However, should there be
corrupt civil servants that are willing to grant the necessary authorization in a short time, in exchange for a
certain sum by the citizens awaiting, the most motivated entrepreneurs, i.e. the ones willing to spend most to
obtain the authorization, may begin their business with no delay, thus reducing the social loss caused by the
inefficiency of the system.
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5. TABLE OF CONTENTS
Corruption: “oil” or “sand” in the system?
Moreover, the corrupt civil servant would benefit also of an illegal payment and his/her own utility would
increase, too. To sum up, we can say that such a situation would have two positive consequences: corruption
would enhance the administration efficiency, by introducing an extra incentive: the bribe. In addition, the State
could take advantage of such a situation to keep the salaries of civil servants exceptionally low.
The above reasoning, though at a first glance perfectly reasonable, is highly questionable. It implicitly assumes,
in fact, that the actors in the system do not respond strategically to the situation they live in.
This is not true.
In more general terms, administrative inefficiency and corruption tend to co-cause each other: the first provides
opportunities for the second, and the second offers good grounds for the first one.
Moreover, the idea that individuals may pay a bribe to obtain a public service, as if the bribe was the price and
such an exchange just another market exchange, is in most cases unrealistic.
In fact, first of all, civil servants almost always enjoy a certain degree of discretion in their job and, in exchange
for an illegal payment, may very well decide to grant a permit even when conditions for it are uncertain or do
not exist at all.
Hardly can this be said to enhance efficiency!
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6. TABLE OF CONTENTS
Corruption: “oil” or “sand” in the system?
In addition, in such a way, the bribe becomes not only an illegal tax, but also a way to receive a benefit from an
office abuse and, therefore, makes corrupt civil servants try to expand their sphere of discretion and certainly
does not contribute to make bureaucracy simpler and more rationally organized.
Also such illegal trades take place typically as a one-to-one relationship between the corrupt and the corrupter,
taking the form of repeated meetings and mutual exchange of favours.
This is very far from market exchange and efficiency.
Moreover, as beiong a member of such networks becomes resourceful, “position rents” intervene to worsen
the situation.
They are, in fact, costly and nourish private interests that are highly conflicting with public ones.
He/she should not waste time in cultivating relationships, be it with civil servants or politicians, with the goal of
obtaining a favorable treatment when needed!
Similarly, it is desirable that the energies of civil servants and politicians are devoted solely to the performance
of institutional duties and not to the creation and expansion of a network of relationships that will, ultimately,
ensure them illegal gains.
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Corruption: “oil” or “sand” in the system?
Nowadays, economic literature tends to focus first on the individual dimension of corruption, to highlight then its
systemic impact.
According to this approach, public administrators and politicians decide to be corrupt or not on the basis of the
additional utility they may derive from it. This means comparing a definite advantage with uncertain costs, the
benefit being the bribe and the costs a very subjective assessment of the conseuqnces of being discovered
and convicted.
To compare benefits and costs, the concept of “expected value” is often used.
The expected value of the cost of corruption is a subjective assessment of the conviction costs(years in prison,
loss of job, fine, social disapproval, etc..) multiplied by the probability of actually being convicted, which is a
function of the (perceived or actual) quality of the institutions responsible for fighting corruption-related
phenomena.
This reasoning is questionable, because it is obvious that people are not exactly the same and do not act
exactly the same.
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8. TABLE OF CONTENTS
Corruption: “oil” or “sand” in the system?
The reasonment we have been discussing above, however, has a conceptual advantage: it highlights the
undeniable significance of the individual interest. More generally, in fact, it is true that the incentive system is of
vital importance in the interpretation of and the fight against corruption.
In fact, it is possible that an individual inserted in a context where the costs of behaving dishonestly are high
chooses not to be corrupt, but may very well decide otherwise in a situation where costs are significantly lower.
However, after having acknowledged the explicative power of such a reasonment, we should also underline
that adopting such an utilitarian point of view always means to lose sight of a basic fact: that people, in addition
to considering their own personal interest, do decide in accordance with their moral values.
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Corruption as a problem of governance
9
Corruption is always linked to many social, economic and legal factors that we define as governance, i.e.
the whole government system, the set of its institutions and their reciprocal relations and actions.
Corruption is, then, an element affecting the relations between the different components of governance
and anti-corruption policies strictu sensu, having the sole aim to eliminate corrupt practices without
investigating governance relationships, are doomed to failure.

10. TABLE OF CONTENTS
Some methodological considerations
The identification and study of corruption-related phenomena is typically carried out on the basis of international
data comparisons. These data relates about different phenomena and different countries, observed in a given
year.
First of all, there are measures of corruption. Typically, a measure of perceived corruption, as the Corruption
Perceived Index, published annually since 1995 by Transparency International (TI-CPI)
The nature of the measure itself provides reasons for exerting caution in the interpretation: the link between the
perception of the phenomenon and the phenomenon itself, is, in fact, at best indirect.
There are a group of variables used as indicators of corruption-related phenomena:
pwt_rgdpch real GDP per capita at constant prices. Years
pwt_grgdpch growth rate of real GDP per capita at constant prices.
undp_gini Gini coefficient on income distribution.
ea_tge total government expenditure (% of GDP).
ea_gee total government expenditure on education, (% of GDP).
ea_fdi foreign direct investments (% of GDP).
eiu_iod democracy index.
fh_press freedom of the press index. It is the result of the sum of three different measures (laws and regulations, pressure and
political control, economic influences).
ipu_w_lower percentage of women in parliament (lower house
epi_epi environmental performance index. A composite index that depends on 25 different variables
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an effort has been done and is still needed to translate complex phenomena, such as freedom of the press or the

11. TABLE OF CONTENTS
Some methodological considerations
An effort has been done and is still needed to translate complex phenomena, such as freedom of the press or the
level of “democracy”, into easily readable summary statistics.
Simplification is, in this case, the price to be paid to perform a quantitative analysis.
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12. TABLE OF CONTENTS
Corruption and political institutions
Several researchers have studied the relationship between corruption and characteristics of political
institutions.
A democratic system, for example, is expected to offer to its citizens a greater chance to control their
politicians and, should these be corrupt, to punish them by mean of people’s favor withdrawal. A free press
should also promote transparency and make corrupt practices harder to maintain and esaier to detect.
At the same time, very corrupt regimes do have an interest in limiting freedom and transparency, in order to
maintain their position rents.
We now consider data from a large group of countries. As a measure of the level of corruption, we will always
use the TI-CPI.
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13. TABLE OF CONTENTS
Corruption and political institutions
We begin by examining the link that exists between the degree of democratic development and the level of
corruption. In general, we can observe that more political rights are associated with lower levels of corruption.
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14. TABLE OF CONTENTS
Corruption and political institutions
In general, we can observe that more political rights are associated with lower levels of corruption.
Figure on the left side shows a strong correlation between the level of perceived corruption and a measure of the
quality of democracy (Source: Economist Intelligence Unit’s).
Figure on the right side shows the index of political rights, a composite index computed by Freedom House,
taking values between 1 (high political rights) to 7 (few political rights).
Correlation persists and, in both cases, the position of Singapore stands out: the country is not very democratic
under the proposed measures, but enjoys a low level of corruption.
The perception of corruption seems to be significantly correlated to the measure of political rights by Freedom
House. The correlation apperas to be non-linear: the transition from autocratic to moderate democratic regimes,
implying a lower level of political control, could be accompanied by an increase in corruption, while from
moderate to full democracy a decline is more probable.
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15. TABLE OF CONTENTS
Corruption and political institutions
However, no consensus has been reached
yet beacuse there is little doubt about the
beneficial effect of a vigorous media
system.
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16. TABLE OF CONTENTS
Corruption and political institutions
16
Corruption seems to be linked also to other, less obvious, institutional features : parliamentary governments
that are characterized by a lower level of corruption than presidential ones, due to better control.
The relationship between corruption and the
characteristics of the electoral system I srather
more complex. In principle, we would expect that,
in democratic systems, voters have the actual
opportunity to get rid of corrupt politicians by not
re-electing them. In reality, however, political
competition takes place on many different cultural
and social levels, so that voters may rationally
choose a corrupt candidate rather than an honest
one, based on their distorted perceptions.
Moreover, it is often tha case that corrupt
politicians are able to devote more resources to
their election campaigns than honest ones, so that
corrupt candidates end up entertaining customer
relationships with their voters. Corruption, in the
end, “corrupts” the political process

17. TABLE OF CONTENTS
Corruption and political institutions
An aspect upon which scholars have bestowed much attention regards the effect of time spent “in charge” by
politicians over the level of corruption. It may be assumed that politicians’ ability in government increases as
they gain experience but, at the same time, one can say that long-running politicians have had the time to build
one-to-one relationships with economic agents that could become a natural basis for corruption
Another theme that has been the subject of massive study concerns the relationship between corruption and
administrative decentralization.
On the one hand, the traditional argument in favour of decentralization maintain that the more we “go local”, the
less corruption we should suffer from. A government closest to citizens should be able to better understand their
problems and provide appropriate responses; moreover, the physical proximity of the governing body may
facilitate the control by the electorate.
On the other hand, decentralization may result in particularly severe forms of “capture” of the political process by
local elites, who, at the expense of the public welfare, may be able to control the available resources, distributing
favours and organizing coalitions to fully exploit position rents. Of course, no one can exclude that these
problems occur also at a national level.
However, it is at the local level that state control is looser and the risk greater. For example, the media system is
typically characterized by a lower degree of competition at the local level and therefore offers a greater chance of
capture by local elites
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18. TABLE OF CONTENTS
Corruption and political institutions
Also, when decentralization leads to duplication of functions, it must be considered that talented people are
available in a finite number and will be most probably working at a higher, central level, leaving local bodies
somehow at a disadvantage.
The available empirical works show an unclear relationship between corruption and decentralization.
Other aspects that have attracted the attention of researchers regard the role of natural resources. Contrary to
our expectations, most of the countries rich in natural resources have a very unequal distribution of income.
Often, in fact, the presence of substantial natural resources creates more attribution conflicts than economic
benefits. Corruption emerges naturally within the fight where judiciary and political institutions abdicate to their
role.
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19. TABLE OF CONTENTS
Quality of regulation and economic
competition
It is undeniable that economic regulation and the level of competition influence the level of corruption.
Ill-designed or excessively complex policies may offer opportunities for corruption.
Take a sharp increase in traffic tickets, conceived to reduce the number of car accidents.
Furthermore, complex rules increase the degree of discretion that can be exercised by those entitled to apply
them and therefore facilitate corruption.
Again, causal relationships work in both directions, since corruption tend to nourish inefficiencies.
Empirically, it has been found that the number of procedures and the time necessary to start an economic
activity, not to mention the costs, are positively correlated with the level of corruption
In addition, there are reasons to suspect that low levels of economic competition are accompanied by higher
levels of corruption. If markets are not contestable, in fact, obtaining a privileged position in them is of some
importance and includes creating networks and exploiting relationships.
Again, however, reverse causality is not to be excluded. Very corrupt regimes have an interest to keep markets
opaque, to get hold of a part of the monopoly profits associated with a reduced level of competition.
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20. TABLE OF CONTENTS
Size of public sector and budgetary
expenditure
Corruption is connected with the allocation of public resources.
It has been argued that the lower the weight of the public sector in the economy, the lower the chance to extract
position rents and, in particular, income from corruption.
The presence of a small public sector, in short, should imply fewer opportunities for corruption.
Is not this point of view too simplistic?
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21. TABLE OF CONTENTS
Size of public sector and budgetary
expenditure
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22. TABLE OF CONTENTS
Size of public sector and budgetary
expenditure
The experience of privatizations carried out in the early ’90s in the former Soviet Union is instructive.
Furthermore, once privatized, companies are still exposed to various kinds of interference and possible requests
for bribes
Moreover, data analysis shows that high levels of corruption can be accompanied by relatively small public
sectors as well and it can be imagined that countries with more developed public sectors are precisely those with
a greater ability of “institution building” and, in general, with a better quality of public governance.
Finally, no consensus has been reached on the sign of correlation between size of the public sector and level of
corruption.
After that, data show irrefutable relationship between level of corruption and military expenditure.
Finally, high levels of corruption are accompanied by relatively low expenditure on education. Unlike the military
sector, the education sector has relatively few opportunities for corruption, since most of its expenditure is devoted
to salaries. These results confirm how corruption distorts priorities in public expenditure with the aim of facilitating
the extraction of bribes.
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23. TABLE OF CONTENTS
Corruption and economic development
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The relationship between corruption and the level of economic development is particularly strong.
While reasons for arguing that corruption is an
impediment to economic development are
obvious, it may also be the case that poorer
countries have fewer resources to fight against
corruption.
However, countries that have a more developed
economy are not necessarily those whose
economy is growing faster and the distinction is of
some consequance when analyzing corruption-related
phenomena .
The data show that, in practice, corruption has a
negative impact not only on the level of income
but also on its growth.
Not all studies, however, are unanimous in this
conclusion.

24. TABLE OF CONTENTS
Corruption and cultural aspects
Though economics tend to focus on individual incentives, other aspects, which we may definel “cultural”, are
rather important as well.
There is indeed a positive link between certain cultural aspects, such as favor to hierarchy, and the level of
corruption.
For instance, Protestant countries tend to have a smaller “average level of perceived corruption” than Catholic
one, the latter being far more hyerarchical , but some studies do not confirm this result.
In addition, “familism” can encourage corruption: strong loyalty to the family/ group prevails on concern for
common good .
Moreover, countries where women hold positions of power have on average a lower level of corruption
In this case, however, it is not easy to draw conclusions. It is possible that women are inherently less inclined to
corrupt and be corrupted and it is equally possible that the resultdepends on the presence of a third non-observed
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TABLE OF CONTENTS
Causes and consequences
of corruption
Thank You for your kindly attention