Taxation, corruption and the exchange rate regime

The paper analyzes the relation between institutional quality, such as corruption, in a country and its monetary regime. It is shown that a credibly fixed exchange rate to a low inflation country, like a currency board, can reduce corruption and improve the fiscal system. A monetary union, however, has ambiguous effects. I find that there is convergence between countries with regard to the level of corruption. -- Exchange Rate Regime ; Monetary Policy ; Fiscal Policy ; Seigniorage ; Corruption ; Developing and Transition Countries