Illegal Drugs and Public Corruption: Crack Based Evidence from California

Abstract

Do illegal drugs foster public corruption? To estimate the causal e¤ect of drugs on public corruption in California, we adopt the synthetic control method and exploit the fact that crack cocaine markets emerged asynchronously across the United States. We focus on California because crack arrived here in 1981, before reaching any other state. Our results show that public corruption more than tripled in California in the …rst three years following the arrival of crack cocaine. We argue that this resulted from the particular characteristics of illegal drugs: a large trade-o¤ between pro…ts and law enforcement, due to a cheap technology and rigid demand. Such a trade-o¤ fosters a convergence of interests between criminals and corrupted public o¢ cials resulting in a positive causal impact of illegal drugs on corruption.