Government Economic Intervention and Corruption

Corruption is a serious problem worldwide, especially in developing countries. This study investigates the impact of eight forms of government economic intervention on corruption in 157 countries grouped either by per-capita income or by region, for the period 2000 to 2006. The evidence shows that property rights were consistently the most important source of corruption suggesting that anti-corruption efforts should start with reforming the legal system. Corruption was also found associated with government intervention in business and trade and less so in the financial and monetary areas. Government spending and taxation were negatively associated with corruption, implying that what contributes most to corruption is not government size or taxes, but instead regulations and the failure to adequately protect property rights. There appears to be ample room to reduce corruption, especially for developing economies by simplifying and reducing government economic intervention.