Indeed, it is possible to generalize the results of Tanzi and Davoodi’s work and to suggest that corruption risks creating perverse incentives, whereby governments will tend to resist economic reforms which, if implemented, would eliminate harmful (but profitable) distortions. So, economic reforms are no longer examined on their merits, but rather in terms of the extent to which they might eliminate bountiful sources of economic rents, a perversion of the legitimate aims of public policy. So, you withhold approving the elimination of export quotas as long as possible, because doing so will push your friends and cronies off the rich trough of illicit profits. Or, as in Indonesia, you sabotage proposals to eliminate monopolies because your children’s billion-dollar businesses will be jeopardized. This is by no means a problem limited to developing countries. Lobbying in the United States and other industrial countries is a multibillion dollar industry. Were it limited to enlightened public discourse on the merits of proposed pieces of legislation through which interested parties, in a spirit of consultation, aim to assist legislators to better understand the full ramifications of various courses of action, “lobbying” would actually fulfill a beneficial public purpose. The reality, however, is often one where (to paraphrase Paul Krugman) corporate cash greatly degrades the ability of the political system to address real problems. So, to give an example, financial sector reform and the need to strengthen the regulatory role of the state—a glaring need, given the origins of the 2008-2009 global financial crisis—is delayed and watered down under the onslaught of “campaign contributions” to politicians for whom re-election is always a priority over the public interest. Some would argue that well-documented lobbying with tough disclosure requirements is better than bribing, but the impression that aggressive lobbying sometimes creates is that it is a more sophisticated mechanism to achieve the same ends sought by those engaged in outright bribery: to obtain some government special dispensation in exchange for some favor.

# **_Worsened income distribution_**

Corruption has disturbing distributional implications. Empirical work done at the IMF shows that corruption actually contributes to worsening income distribution. Gupta, Davoodi and AlonsoTerme (1998) have shown that corruption, by lowering economic growth, perceptibly pushes up income inequality. It also distorts the tax system because the wealthy and powerful are able to use their connections to make sure that the tax system works in their favor (e.g., tax cuts for the well-off). It also leads to inefficient targeting of social programs, many of which will acquire regressive features, with benefits disproportionately allocated to the higher income brackets, an issue we will examine more closely below. Corruption is associated also with lower social spending, unequal access to education, and the “use of wealth by the well-to-do to lobby governments for favorable policies that perpetuate inequality in asset ownership (p. 4).”

# **_Uncertainty and short-term focus_**

Corruption creates uncertainty. There are no enforceable property rights emanating from a transaction involving bribery. The firm that obtains a concession from a high-placed bureaucrat as a result of bribery cannot know with certainty how long the benefit will last. In a competitive market others may appear and be willing to pay more for it. The terms of the “contract” or 22