Corruption and Disposable Risk (original) (raw)

Corruption, Uncertainty And Growth

Corruption in the public sector erodes tax compliance and leads to higher tax evasion. Moreover, corrupt public officials abuse their public power to extort bribes from the private agents. In both types of interaction with the public sector, the private agents are bound to face uncertainty with respect to their disposable incomes. To analyse effects of this uncertainty, a stochastic dynamic growth model with the public sector is examined. It is shown that deterministic excessive red tape and corruption deteriorate the growth potential through income redistribution and public sector inefficiencies. Most importantly, it is demonstrated that the increase in corruption via higher uncertainty exerts adverse effects on capital accumulation, thus leading to lower growth rates.

Endogenous detection in a simple model of corruption and growth

2011

Economic and rent-seeking outcomes are determined jointly in a dynamic general equilibrium model of corruption, public spending and growth. In an economy with government intervention and capital accumulation, state-appointed bureaucrats are responsible for providing public goods, which contribute to productive efficiency. Corruption arises because of an opportunity for bureaucrats to appropriate public funds with an endogenous probability of being detected and punished. Given this probability, which depends on aggregate outcomes, each agent maximises her expected lifetime utility by choosing consumption and savings. The model produces multiple development regimes, which yield different predictions about detection of corruption, public spending and investment depending on initial conditions. These predictions accord strongly with the empirical evidence on corruption and development. JEL classification: D73, H41, K42, O11, O17

Endogenous corruption in economic development

University of Nottingham, GEP …, 2004

This paper presents an analysis of the joint determination of bureaucratic corruption and economic development. The analysis is based on a simple neo-classical growth model in which bureaucrats are employed as agents of the government to collect taxes from households. Corruption is reflected in bribery and tax evasion as bureaucrats conspire with households to provide false information to the government. Costly concealment of this activity leads to a loss of resources available for productive investments. The incentive for an individual bureaucrat to accept a bribe depends on the number of other bureaucrats who are expected to accept bribes. This strategic interaction in bureaucratic decision making produces multiple (frequency-dependent) equilibria associated with different incidences of corruption. The predictions of the model accord strongly with recent empirical evidence. * The authors are grateful for the financial support of the ESRC (grant no. L138251030). The usual disclaimer applies.

Corruption, Seigniorage and Growth: Theory and Evidence

2008

This paper presents an analysis of the effect of bureaucratic corruption on economic growth through a public finance transmission channel. At the theoretical level, we develop a simple dynamic general equilibrium model in which financial intermediaries make portfolio decisions on behalf of agents, and bureaucrats collect tax revenues on behalf of the government. Corruption takes the form of the embezzlement of public funds, the effect of which is to increase the government's reliance on seigniorage finance. This leads to an increase in inflation which, in turn, reduces capital accumulation and growth. At the empirical level, we use data on 82 countries over a 20-year period to test the predictions of our model. Taking proper account of the government's budget constraint, we find strong evidence to support these predictions under different estimation strategies. Our results are robust to a wide range of sensitivity tests.

The role of uncertainty in the corruption-growth nexus

2011

This paper analyses how corruption-induced income uncertainty affects the rela-tionship between corruption and economic growth. To account for this uncertainty, a stochastic dynamic growth model is considered. Analysis demonstrates that the income uncertainty engendered by ...

Corruption and economic growth with non constant labor force growth

Communications in Nonlinear Science and Numerical Simulation, 2017

Based on Brianzoni et al. [1] in the present work we propose an economic model regarding the relationship between corruption in public procurement and economic growth. We extend the benchmark model by introducing endogenous labor force growth, described by the logistic equation. The results of previous studies, as Del Monte and Papagni [2] and Mauro [3] , show that countries are stuck in one of the two equilibria (high corruption and low economic growth or low corruption and high economic growth). Brianzoni et al. [1] prove the existence of a further steady state characterized by intermediate levels of capital per capita and corruption. Our aim is to investigate the effects of the endogenous growth around such equilibrium. Moreover, due to the high number of parameters of the model, specific attention is given to the numerical simulations which highlight new policy measures that can be adopted by the government to fight corruption.

Discussion Paper Series Corruption , Seigniorage and Growth : Theory and Evidence

2008

This paper presents an analysis of the e¤ect of bureaucratic corruption on economic growth through a public nance transmission channel. At the theoretical level, we develop a simple dynamic general equilibrium model in which nancial intermediaries make portfolio decisions on behalf of agents, and bureaucrats collect tax revenues on behalf of the government. Corruption takes the form of the embezzlement of public funds, the e¤ect of which is to increase the government’s reliance on seigniorage nance. This leads to an increase in in‡ation which, in turn, reduces capital accumulation and growth. At the empirical level, we use data on 82 countries over a 20-year period to test the predictions of our model. Taking proper account of the government’s budget constraint, we nd strong evidence to support these predictions under di¤erent estimation strategies. Our results are robust to a wide range of sensitivity tests. JEL Classi cation: E6, H6, O16, O17, O42.

Growth, public investment and corruption with failing institutions

Economics of Governance, 2009

Corruption is thought to prevent poor countries from catching-up. We analyze one channel through which corruption hampers growth: public investment can be distorted in favor of specific types of spending for which rent-seeking is easier and better concealed. To study this distortion, we propose an optimal growth model where households vote for the composition of public spending subject to an incentive constraint reflecting individuals' choice between productive activity and rent-seeking. At equilibrium, the intensity of corruption and the structure of public investment are determined by the predatory technology and the distribution of political power. Among different regimes, the model shows a possible scenario of distortion without corruption in which there is no effective corruption yet still the possibility of corruption distorts the allocation of public investment, thus hampering growth. We test the implications of the model on a panel of countries estimating a system of equations with instrumental variables. We find that countries with a high predatory technology invest more in housing and physical capital in comparison with health and education. For equal initial conditions, such countries grow slower and have higher corruption, in particular when political power is concentrated. Equilibrium theory and optimization for public policy and industry regulation"). We are very grateful to Fr´ed´eric Docquier, Pierre Pestieau, James Stock and Dirk van de Gaer for helpful suggestions, and to Lennart Hooger-heide for a very detailed and useful internal referee report. We also thank the participants to the PET06 conference for comments. † .

Corruption and transparency in a growth model

International Tax and Public Finance, 2006

We develop a Ramsey type model of economic growth in which the "Engine of Growth" is public capital accumulation. Public capital is a public good, and is financed by taxes on private output. The government may either use the taxes gathered to fund public capital accumulation or consume the resourses itself; that is engage in corruption. There is an irreducable level of endogenously determined corruption which constitutes rents for which potential governments compete. This competition takes the form of choosing a time path for public capital invesment, which implies time paths for output and household consumption. We study both the model's steady state, and dynamical behavior along the saddle path. The predictions of our theory accord well with the existant empirical evidence on the relationships between the level and growth rate of output, corruption, public investment and fiscal transparency. Our analysis also does a good job of explaining the transition experiences of several Eastern European economies.