draining development.pdf - Khazar University

476 Draining Development?rations to give more information in their accounts about the location oftheir sales or profits. 21What would be the political and economic consequences for the typicalweak state? The analysis in this chapter and elsewhere in this booksuggests that they would be complex, because many variables interact. Isuggest there would be a definable causal chain, sequenced approximatelyas follows: 221. The net volume of illicit outflows would decline for two proximatereasons. First, transfer mispricing would diminish because it wouldbe easier to detect, and the penalties would increase. Second, theoverall level of corruption would decline because the opportunitiesto transfer and hide the proceeds overseas would decrease, and thechances of detection nationally or internationally would increase.2. More capital would stay within the country.3. The level of legitimate investment in productive activities wouldincrease for several reasons. More capital would be available. Theburden of taxes on the corporate sector would be spread more evenly,improving the investment environment for companies and sectorsthat currently bear high tax burdens. Political elites would be moremotivated to improve the domestic investment environment. Theywould have two reasons to do so. One arises from group self-interest:because the incentives and opportunities to expatriate their own licitand illicit capital assets would be reduced, they would be more concernedabout domestic investment opportunities. The other stemsfrom their political dominance and interest in public revenue. Themore domestic capital that is potentially available for investment, themore likely it is that improvements in the investment environmentwould bring returns to those who run the state through increasedinvestment leading to higher public revenues. Through these incentivemechanisms, one could expect various kinds of public organizationsand institutions to be strengthened, including the overall securityof property rights.4. The greater visible engagement of elites in productive domesticinvestment would help increase the overall legitimacy of capitalism.5. Democratic institutions and practices should be strengthenedbecause political elites would have less interest in controlling political