The Brookings Institution Wei is also Director of the project on Corruption and Poor Public Governance Download Full Paper in PDF format. Bureaucratic quality in terms of the level of corruption varies widely across countries, and is in general slow to evolve relative to the speed with which many economic policies can be implemented such as the imposition of capital controls. We first derive a model that delivers such a result.
Bureaucratic corruption translates into reduced ability by the government to collect tax revenue.
For all countries for which we can obtain relevant data, we find that more corrupt countries are indeed more likely to impose capital controls, a pattern consistent with the model's prediction. The result of this paper suggests that a premature removal of capital controls mandated by outside institutions could reduce rather than enhance economic efficiency.