What is corruption?  The abuse of public office for private gain Broad categorizations of corruption  High level and low level corruption  Organized or chaotic corruption

 Trade Restrictions and Government Intervention – tariffs and import quotas  Partial Industrial policies – subsidies and tax deductions  Price controls  Multiple exchange rate practices  Foreign exchange allocation schemes  Government-controlled provision of credit  Government Allocation of Oil extraction rights  Low- paid civil servants

 Reduces economic growth  Lowers incentives to invest for both, domestic and foreign entrepreneurs  Corruption becomes a secret tax laden with uncertainty  Lowers quality of public infrastructure and services  Decreases tax revenues  Talent is wasted in rent seeking rather than productive activity  Distorts composition of government expenditure

 Political instability  Bureaucratic red tape  Weak legislative and judicial system

 Why the governments need to get rid of corruption for its high costs?  Does poverty breed corruption?  Which forms of corruption are worse?  What is being done?  What more can be done?  How should policy effectiveness be assessed over the next decade?