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Corruption and Transparency in a Growth Model

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  • Christopher Ellis

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  • John Fender

    ()

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    Abstract

    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 existent empirical evidence on the relationships between the level and growth rate of output, corruption, public investment and fiscal transparency. Our analysis also provides a perspective on the transition experiences of several Eastern European economies. Copyright Springer Science + Business Media, Inc. 2006

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    Bibliographic Info

    Article provided by Springer in its journal International Tax and Public Finance.

    Volume (Year): 13 (2006)
    Issue (Month): 2 (May)
    Pages: 115-149

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    Handle: RePEc:kap:itaxpf:v:13:y:2006:i:2:p:115-149

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    Web page: http://www.springerlink.com/link.asp?id=102915

    Related research

    Keywords: corruption; growth; transparency; public capital;

    References

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    1. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc.
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    14. Vito Tanzi, 1998. "Corruption Around the World," IMF Working Papers 98/63, International Monetary Fund.
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    Cited by:
    1. Cerqueti, Roy & Coppier, Raffaella, 2011. "Economic growth, corruption and tax evasion," Economic Modelling, Elsevier, vol. 28(1-2), pages 489-500, January.
    2. Sugata Ghosh & Kyriakos C. Neanidis, 2010. "Corruption, Fiscal Policy, and Growth: A Unified Approach," Centre for Growth and Business Cycle Research Discussion Paper Series 140, Economics, The Univeristy of Manchester.
    3. Okada, Keisuke & Samreth, Sovannroeun, 2010. "How Does Corruption Influence the Effect of Foreign Direct Investment on Economic Growth?," MPRA Paper 27572, University Library of Munich, Germany.

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