Public Choice

, Volume 165, Issue 1–2, pp 59–77 | Cite as

Corruption and entrepreneurship: evidence from Brazilian municipalities

Article

Abstract

We estimate the effect of corruption on business activity in Brazilian municipalities. We employ a new measure of corruption based on data from random audits of municipal governments. Our results suggest that higher levels of corruption are generally associated with reductions in the number of business establishments. Furthermore, we find that these effects become larger over time, suggesting that corruption is particularly detrimental over the long-run. However, we also find that the effect of corruption on business activity can be insignificant or even positive conditional on institutional quality being very poor. This is consistent with the “grease the wheels” hypothesis, which argues that corruption provides entrepreneurs with means to avoid burdensome regulations and taxes.

Keywords

Entrepreneurship Corruption Institutions 

JEL Classification

R1 R5 

Supplementary material

11127_2015_292_MOESM1_ESM.docx (26 kb)
Supplementary material 1 (DOCX 25 kb)

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Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  1. 1.Department of EconomicsWest Virginia UniversityMorgantownUSA

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