Financial Development and Intersectoral Allocation: A New Approach

We study cultural norms and legal enforcement in controlling corruption by analyzing the parking behavior of United Nations officials in Manhattan. Until 2002, diplomatic immunity protected U.N. diplomats from parking enforcement actions, so diplomats' actions were constrained by cultural norms alone. We find a strong effect of corruption norms: diplomats from high corruption countries (based on existing survey-based indices) accumulated significantly more unpaid parking violations. In 2002, enforcement authorities acquired the right to confiscate diplomatic plates of violators. Unpaid violations dropped sharply in response. Corruption norms and (particularly in this context) legal enforcement are both important determinants of corruption.