Corruption and regulatory burden

It is known that government has discretionary power in providing public goods and regulating the economy. Corrupt bureaucracy with discretionary power creates and extracts rents by manipulating with the public good supply and regulations: i) by attaching excessive red tape to the public good they are providing; ii) or by making the regulations di±cult for the private agents to comply with. The former type of corruption results in less public input being provided at higher cost to the private agents. The latter increases non-compliance, which then breeds bribery. Consequently, the overall public sector burden is higher in the environment with corrupt bureaucracy. We show this outcome using a simple theoretical model, and then confront it with empirical evidence.