Signaling honesty: Institutional strength and voters' concern about corruption in a model of electoral competition

We provide a simple microeconomic model which explains some recent findings of the empirical literature on Political Economy, namely that some incumbents - corrupts or not - engage in anti-corruption policies in the last year of their terms (during campaign for reelection), and that incentives to adopt such measures are stronger when the competition for office is fiercer. Among other determinants, we show how politicians' perception of how much voters care about honesty is crucial in their choice. We apply our model to the Brazilian political scenario and show that our predictions are supported by anecdotal evidence and data. In particular, we are able to explain the change in the behavior of Brazilian incumbents after the 2013 public revolts. Once voters were perceived as more concerned about public misconduct, and the competition for office became fiercer, fighting corruption - and thus signaling honesty - turned into the best choice.