I study the link between ethnic diversity, democracy, and
corruption. In a static model, I show that contrary to conventional wisdom,
corruption might emerge as a negative externality of democracy. This
occurs through ethnicity, which appears as a rent-extracting technology
in a democratic society. Extending the model into a dynamic framework,
I find that this technology of extraction operates only at the early
stage of democracy. Its impact tends to phase out as democracy matures.
In other words, the model predicts that democracy exhibits a threshold
effect on corruption.

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