Corruption, political competition and environmental policy

Abstract

There is a vast literature on the causes and consequences of corruption. A common theme is the belief that countries which exhibit a low level of political competition are more likely to have higher levels of corruption. The model presented here examines the effect of corruption on environmental policy under varying degrees of political competition. An important feature of this model, which has received far less attention in the literature, is that corruption may occur at different levels. A polluting firm attempts to reduce the amount of an environmental tax it pays by bribing a low level bureaucrat to make no reports regarding emission levels. In addition, it also makes contributions to the incumbent and rival parties of government in order to influence key policy parameters. The model thus provides a picture of the relationship between political competition, environmental outcomes and the type of corruption which may be observed. It is shown that higher levels of political competition result in more stringent regulations and better environmental outcomes. Political competition also has the capacity to reduce both grand and petty corruption, however, this is not assured. The model also suggests that polluting interests may have an incentive to corrupt opposition parties in order to weaken their political position. This may lead to policy convergence even when political competition is strong. Political competition is indicated as a necessary but not sufficient means by which to combat corruption.