Legalize It: An argument for formalizing petty corruption wen state capacity is low

Abstract

Corruption in the form of informal payments to bureaucrats for public services are a major problem around the world. There are however few theories of how countries can get rid of corruption. I argue that petty corruption must be understood not only as a problem, but also as a way of financing public services when state capacity is low. If the state is unable to collect revenue from citizens and pay decent wages to bureaucrats, citizens and bureaucrats can engage in a direct transaction: informal payments in exchange for services. Still, the unpredictability and secrecy of corruption has negative consequences for citizens. I there-fore suggest that the situation could be improved by formalizing informal payments; a modest improvement for corruption-stricken societies, but in contrast to other suggested reforms, more feasible. The argument is illustrated with a study of the formalization of informal payments in Sweden during the 19th century.