Corruption, Political equilibrium, Public goods, Public expenditure, Taxation,

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This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. This paper analyses why corruption can persist for long periods in a democracy and inquires whether this can result from a well-informed rational choice of the citizens. By applying a citizen-candidate model of representative democracy, the paper analyzes how corruption distorts the allocation of resources between public and private expenditure, altering the policy preferences of elected and nonelected citizens in opposite directions. The result is a reduction in real public expenditure and, if the median voter's demand for public goods is sufficiently elastic, a tax reduction. In this case, some citizens can indirectly benefit from corruption. The paper shows that, under this condition, if the citizens anticipate a shift in policy preferences in favor of higher public expenditure, they may support institutional arrangements that favor corruption (such as a weak enforcement of the law) in order to alter future policy decisions in their favor. This result complements the findings of other studies that have attributed the persistence of corruption in a democracy to some failure on the part of the voters or the electoral system. It also bears implications for developing effective anticorruption strategies and for redefining the role that can be played by the international community. JEL Classification Numbers: D72; H20; H41; H50; K40; K42.

Pani, Marco. Expenditure composition and economic development in Benin. French Répartition des dépenses et développement économique au Benin