Corruption, unemployment, and clientelism: A Political Economy approach

Abstract

We present a theoretical general equilibrium model that incorporates capital allocation dynamics between licit and illicit activities, endogenous unemployment, idiosyncratic moral costs, and the influence of corrupt political power. Our inquiry focuses on the endogeneity of corruption, highlighting its reciprocal relationship with political power, which is mediated through clientelist practices. Using data from Sub-Saharan African countries, our model reveals multiple equilibria, establishing a negative correlation between output and corruption and a positive correlation between corruption and unemployment. In addition, our analysis suggests that implementing appropriate tax rates to fund unemployment benefits can effectively alleviate corruption by transforming unemployed individuals’ perception of subsidies; this shift in perspective diminishes their susceptibility to corrupt practices, underscoring the significance of policy interventions targeting unemployment reduction to weaken clientelist mechanisms and reduce corruption. This study enriches our comprehension of the nuanced impact of corruption on economic outcomes and offers valuable insights for formulating effective anti-corruption policies.