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ABSTRACT
Corruption in the form of informal payments to bureaucrats for public services are a major prob-lem around the world. There are however few theories of how countries can get rid of corruption. I argue that petty corruption must be understood not only as a problem, but also as a way of financ-ing public services when state capacity is low. If the state is unable to collect revenue from citizens and pay decent wages to bureaucrats, citizens and bureaucrats can engage in a direct transaction: informal payments in exchange for services.
Still, the unpredictability and secrecy of corruption has negative consequences for citizens. I there-fore suggest that the situation could be improved by formalizing informal payments; a modest im-provement for corruption-stricken societies, but in contrast to other suggested reforms, more fea-sible. The argument is illustrated with a study of the formalization of informal payments in Sweden during the 19th century.
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