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Corruption, Optimal Taxation and Growth

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  • Raul A. Barreto

    ()
    (School of Economics, University of Adelaide)

  • James Alm

    (Andrew Young School of Policy Studies, Georgia State Universit)

Abstract

How does the presence of corruption affect the optimal mix between consumption and income taxation? In this paper we examine this issue using a simple neoclassical growth model, with a self-seeking and corrupt public sector. We find that the optimal tax mix in a corrupt economy is one that relies more heavily upon consumption taxes than on income taxes, relative to an economy without corruption. Our model also allows us to investigate the effect of corruption on the optimal size of government, and our results indicate that the optimal size of government balances the wishes of the corrupt public sector for a larger government, and so greater opportunities for corruption, with those in the private sector who prefer a smaller government. Not surprisingly, the optimal size of government is smaller in an economy with corruption than in one without corruption.

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File URL: http://www.economics.adelaide.edu.au/research/papers/doc/wp2001-03.pdf
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Bibliographic Info

Paper provided by University of Adelaide, School of Economics in its series School of Economics Working Papers with number 2001-03.

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Length: 26 pages
Date of creation: 2001
Date of revision:
Handle: RePEc:adl:wpaper:2001-03

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Postal: Adelaide SA 5005
Phone: (618) 8303 5540
Web page: http://www.economics.adelaide.edu.au/
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Keywords: endogenous growth; corruption; taxation;

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References

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  1. Jones, Larry E & Manuelli, Rodolfo E & Rossi, Peter E, 1993. "Optimal Taxation in Models of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 485-517, June.
  2. Devereux, Michael B & Mansoorian, Arman, 1992. "International Fiscal Policy Coordination and Economic Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(2), pages 249-68, May.
  3. Saint-Paul, G., 1991. "Fiscal Policy In An Endogenous Growth Model," DELTA Working Papers 91-04, DELTA (Ecole normale supérieure).
  4. Hartwick, John M., 1992. "Endogenous growth with public education," Economics Letters, Elsevier, vol. 39(4), pages 493-497, August.
  5. Barro, Robert J. & Sala-i-Martin, Xavier, 1992. "Public Finance in Models of Economic Growth," CEPR Discussion Papers 630, C.E.P.R. Discussion Papers.
  6. Barreto, Raul A., 2000. "Endogenous corruption in a neoclassical growth model," European Economic Review, Elsevier, vol. 44(1), pages 35-60, January.
  7. Pual Pecorino, 1992. "Rent Seeking and Growth: The Case of Growth through Human Capital Accumulation," Canadian Journal of Economics, Canadian Economics Association, vol. 25(4), pages 944-56, November.
  8. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
  9. Glomm, Gerhard & Ravikumar, B, 1992. "Public versus Private Investment in Human Capital Endogenous Growth and Income Inequality," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 818-34, August.
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Citations

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Cited by:
  1. Dzhumashev, Ratbek, 2008. "Corruption and regulatory burden," MPRA Paper 2081, University Library of Munich, Germany.
  2. repec:rej:journl:v:16:y:2013:i:47:p:3-22 is not listed on IDEAS
  3. Rodrigues-Neto, José A., 2014. "On corruption, bribes and the exchange of favors," Economic Modelling, Elsevier, vol. 38(C), pages 152-162.
  4. Květa Kubátová, 2009. "Optimal Taxation – Review of Theory," Český finanční a účetní časopis, University of Economics, Prague, vol. 2009(3), pages 24-36.
  5. James Alm & Jorge Martinez-Vazquez & Chandler McClellan, 2014. "Corruption and Firm Tax Evasion," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1422, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  6. José A. Rodrigues-Neto, 2009. "Sex, Money and Corruption," ANU Working Papers in Economics and Econometrics 2009-500, Australian National University, College of Business and Economics, School of Economics.
  7. Mehmet Tosun, 2006. "Explaining the Variation in Tax Structures in the MENA Region," Working Papers 06-018, University of Nevada, Reno, Department of Economics & University of Nevada, Reno , Department of Resource Economics.
  8. Kammas, Pantelis & Litina, Anastasia & Palivos, Theodore, 2013. "The Quality of Public Education in Unequal Societies: The Role of Tax Institutions," MPRA Paper 52193, University Library of Munich, Germany.

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