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Corruption and Transparency in a Growth Model

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  • Christopher Ellis
  • John Fender

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

Suggested Citation

  • Christopher Ellis & John Fender, 2006. "Corruption and Transparency in a Growth Model," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 13(2), pages 115-149, May.
    • Handle: RePEc:kap:itaxpf:v:13:y:2006:i:2:p:115-149
    DOI: 10.1007/s10797-006-1664-z
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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. De Simone Elina & Gaeta Giuseppe Lucio & Mourão Paulo Reis, 2017. "The Impact of Fiscal Transparency on Corruption: An Empirical Analysis Based on Longitudinal Data," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 17(4), pages 1-17, October.
    3. Turhan Kaymak & Eralp Bektas, 2015. "Corruption in Emerging Markets: A Multidimensional Study," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 124(3), pages 785-805, December.
    4. Davide Infante & Janna Smirnova, 2010. "Market Failures within Poor Institutions: The Effects of Bureaucrats’ Rent-seeking Activity," Chapters, in: Neri Salvadori (ed.), Institutional and Social Dynamics of Growth and Distribution, chapter 5, Edward Elgar Publishing.
    5. Steve Billon & Robert Gillanders, 2016. "State ownership and corruption," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(6), pages 1074-1092, December.
    6. Ghosh Sugata & Neanidis Kyriakos C., 2017. "Corruption, fiscal policy, and growth: a unified approach," The B.E. Journal of Macroeconomics, De Gruyter, vol. 17(2), pages 1-24, June.
    7. Keisuke Okada & Sovannroeun Samreth, 2014. "How Does Corruption Influence the Effect of Foreign Direct Investment on Economic Growth?," Global Economic Review, Taylor & Francis Journals, vol. 43(3), pages 207-220, September.
    8. Park, Hyun & Philippopoulos, Apostolis & Vassilatos, Vanghelis, 2005. "Choosing the size of the public sector under rent seeking from state coffers," European Journal of Political Economy, Elsevier, vol. 21(4), pages 830-850, December.
    9. Anum Ellahi, 2020. "Corruption, Tax Evasion, and Economic Development in Economies with Decentralised Tax Administrative System," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 59(3), pages 419-438.
    10. Antonio Acconcia, 2006. "Endogenous Corruption and Tax Evasion in a Dynamic Model," CSEF Working Papers 154, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 01 Nov 2006.
    11. Jan Hanousek & Evžen Kočenda, 2011. "Public Investment and Fiscal Performance in the New EU Member States," Fiscal Studies, Institute for Fiscal Studies, vol. 32(1), pages 43-71, March.
    12. Li, Zhi & Ouyang, Xiaoling & Du, Kerui & Zhao, Yang, 2017. "Does government transparency contribute to improved eco-efficiency performance? An empirical study of 262 cities in China," Energy Policy, Elsevier, vol. 110(C), pages 79-89.
    13. Tima T. Moldogaziev & Cheol Liu & Martin J. Luby, 2017. "Public Corruption in the U.S. States and Its Impact on Public Debt Pricing," Kyklos, Wiley Blackwell, vol. 70(2), pages 306-329, May.
    14. Roland Hodler, 2007. "Rent seeking and aid effectiveness," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(5), pages 525-541, October.
    15. Gareth D. Myles & Hana Yousefi, 2020. "Corruption as an Occupational Choice: Endogenous Corruption and Tax Policy," Southern Economic Journal, John Wiley & Sons, vol. 86(4), pages 1446-1474, April.
    16. Joseph G. ATTILA, 2008. "Corruption, taxation and economic growth: theory and evidence," Working Papers 200829, CERDI.
    17. Toke S. Aidt, 2011. "Corruption and Sustainable Development," Chapters, in: Susan Rose-Ackerman & Tina Søreide (ed.), International Handbook on the Economics of Corruption, Volume Two, chapter 1, Edward Elgar Publishing.
    18. Yves M. Tehou TEKENG & Mesbah Fathy SHARAF, 2015. "Fiscal Transparency, Measurement and Determinants: Evidence from 27 Developing Countries," Journal of Economics and Political Economy, KSP Journals, vol. 2(1), pages 69-91, March.
    19. Andrei S. Akhremenko & Alexander Petrov, 2014. "Efficiency, Policy Selection, And Growth In Democracy And Autocracy: A Formal Dynamical Model," HSE Working papers WP BRP 16/PS/2014, National Research University Higher School of Economics.
    20. Tong, Antonia, 2021. "The possibility of a decentralized economy in China and the USA," MPRA Paper 109609, University Library of Munich, Germany.

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