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Optimal Government Regulations And Red Tape In An Economy With Corruption

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  • MÉNDEZ, FABIO
  • SEPÚLVEDA, FACUNDO

Abstract

We study an economy where agents are heterogeneous in entrepreneurial ability, and may decide to become workers or entrepreneurs. The government is motivated by a production externality to impose regulations on entrepreneurship, and sets a level of red tape to test regulation compliance. In an environment where some officials are corrupt, we characterize the optimal levels of regulations and red tape, and to what extent such policies reduce the welfare losses created by corruption. For each level of externalities, high and lowlevels of corruption create qualitatively different distortions, which in turn hanges the nature and reach of optimal policies.

Suggested Citation

  • Méndez, Fabio & Sepúlveda, Facundo, 2013. "Optimal Government Regulations And Red Tape In An Economy With Corruption," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 54(1), pages 51-77, June.
  • Handle: RePEc:hit:hitjec:v:54:y:2013:i:1:p:51-77
    DOI: 10.15057/25774
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    1. Jakob Svensson, 2003. "Who Must Pay Bribes and How Much? Evidence from a Cross Section of Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 207-230.
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    3. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2002. "The Regulation of Entry," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 1-37.
    4. Hunt, Jennifer & Laszlo, Sonia, 2005. "Bribery: Who Pays, Who Refuses, What are the Payoffs?," CEPR Discussion Papers 5251, C.E.P.R. Discussion Papers.
    5. Cadot, Olivier, 1987. "Corruption as a gamble," Journal of Public Economics, Elsevier, vol. 33(2), pages 223-244, July.
    6. Guriev, Sergei, 2004. "Red tape and corruption," Journal of Development Economics, Elsevier, vol. 73(2), pages 489-504, April.
    7. Acemoglu, Daron & Verdier, Thierry, 1998. "Property Rights, Corruption and the Allocation of Talent: A General Equilibrium Approach," Economic Journal, Royal Economic Society, vol. 108(450), pages 1381-1403, September.
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    Cited by:

    1. Rajeev Goel, 2012. "Business regulation and taxation: effects on cross-country corruption," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 15(3), pages 223-242.
    2. repec:zbw:bofitp:2008_010 is not listed on IDEAS

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    More about this item

    Keywords

    corruption; red tape; government policy;
    All these keywords.

    JEL classification:

    • H1 - Public Economics - - Structure and Scope of Government
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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