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Corruption, taxation and economic growth: theory and evidence

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  • Gbewopo ATTILA

    ()
    (Centre d'Etudes et de Recherches sur le Développement International)

Abstract

In this paper, we analyze the interaction between corruption, taxation and economic growth. Our contributions are twofold. Theoretically, in an endogenous growth model, we introduce corruption in two different ways: corruption in the public expenditure and corruption in the public revenue. We show two opposing effects. Under certain conditions, corruption can affect growth rate positively but it can also exert a negative effect via fiscal revenue. Not only does it tend to make the tax rate, which maximizes the long run growth rate sub-optimal, but it can also create distortions that can lead to excessive tax rates harmful to growth. The empirical analyses are based on non parametric estimates as well as econometric investigations. Our results support the assumption of a non linear relationship between public resources and growth. Interactions between public resources and institutional variables evidence the following the results: (i) the more countries are corrupt the stronger the negative effects of taxation on the growth (ii) Once the negative effects of corruption are accounted

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Bibliographic Info

Paper provided by CERDI in its series Working Papers with number 200829.

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Length: 27
Date of creation: 2008
Date of revision:
Handle: RePEc:cdi:wpaper:1060

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Keywords: corruption; taxation; growth; developing countries;

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  1. repec:hal:cesptp:halshs-00129741 is not listed on IDEAS
  2. Pierre-Guillaume Méon & Laurent Weill, 2010. "Is corruption an efficient grease?," ULB Institutional Repository 2013/92603, ULB -- Universite Libre de Bruxelles.
  3. Pierre-Guillaume Méon & Khalid Sekkat, 2005. "Does corruption grease or sand the wheels of growth?," Public Choice, Springer, vol. 122(1), pages 69-97, January.
  4. David de la Croix & Clara Delavallade, 2007. "Growth, Public Investment and Corruption with Failing Institutions," Working Papers 61, ECINEQ, Society for the Study of Economic Inequality.
  5. Del Monte, Alfredo & Papagni, Erasmo, 2001. "Public expenditure, corruption, and economic growth: the case of Italy," European Journal of Political Economy, Elsevier, vol. 17(1), pages 1-16, March.
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