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Corruption, regulation, and growth: an empirical study of the United States

This paper investigates whether the costs of corruption are conditional on the extent of government intervention in the economy. We use data on corruption convictions and economic growth between 1975 and 2007 across the US states to test this hypothesis. Although no state approaches the level of government intervention found in many developing countries, we still find evidence for the “weak” form of the grease-the-wheels hypothesis. While corruption is never good for growth, its harmful effects are smaller in states with more regulation.