Bribery, Democracy and their impact on Governance and Welfare: The Case of Rural India

Participation in welfare programs, administered by local government (Panchayats) is a significant
source of consumption expenditure for households in rural India. In the context of imperfect local
governance, we hypothesize that access to such programs may be limited, thus creating incentives
for households to bribe in order to gain access. Using a 10-year panel dataset, we jointly estimate
determinants of bribes, participation in welfare programs, and consequent change in economic
welfare of households. We show that bribing does improve program participation and thence
private consumption. Factors such as deepening democracy and increased fiscal buoyancy improve
the quality of governance and increase the rate of participation in welfare programs and reduce the
incidence of bribes.