Economics of corruption

Economics of corruption deals with the misuse of public power for private benefit and its economic impact on society. Economies that are afflicted by a high level of corruption are not capable of prospering as fully as those with a low level of corruption. Also, economies that are corrupted are not able to function properly since the natural laws of the economy can not function freely. As a consequence, corruption, for instance, leads to an inefficient allocation of resources, poor education, and healthcare or the presence of a shadow economy, a kind of economy that includes illegal activities as well as unreported income from the production of legal goods and services for which taxes should be paid, but are not.

Corruption can be measured objectively by counting the number of criminal indictments for corruption; however, this can be ineffective due to the fact that the ratio of indictments to actual corruption may be highly variable. Often corruption goes unpunished and is thus not counted in this measure. Subjective measures, typically curated via survey data, may be a useful tool to measure corruption. Comparisons between countries may be more comprehensive and consistent, though a fair amount of bias is present in this data as well due to the nature of the subject it measures. The International Country Risk Guide is a survey of firms on the likelihood they will be asked to make illegal or extralegal payments. The Corruption Perceptions Index is a detailed survey incorporating data from many nations and groups. Finally, the World Bank produces an annual "control of corruption" index that uses similar sources to the International Country Risk Guide and Corruption Perception Index.