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Rent-Seeking Competition from State Coffers: A Calibrated DSGE Model of the Euro Area

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  • Konstantinos Angelopoulos
  • Apostolis Philippopoulos
  • Vanghelis Vassilatos

Abstract

This paper incorporates an uncoordinated struggle for extra fiscal favors into an otherwise standard Dynamic Stochastic General Equilibrium model. This reflects the popular belief that interest groups compete for privileged transfers and tax treatment at the expense of the general public interest, and so the aggregate economy stagnates. The model is calibrated to the euro area over the period 1980-2003. Our results show that rent-seeking competition can contribute to explaining the European macroeconomic experience. We also get quantitative evidence of the fraction of collected tax revenues grabbed by rent seekers.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2006/wp-cesifo-2006-01/cesifo1_wp1644.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1644.

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Date of creation: 2006
Date of revision:
Handle: RePEc:ces:ceswps:_1644

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Related research

Keywords: rent seeking; fiscal policy; real business cycles;

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References

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Citations

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Cited by:
  1. Francoise Forges & Frédéric Koessler, 2006. "Long Persuasion Games," CESifo Working Paper Series 1669, CESifo Group Munich.
  2. Konstantinos Angelopoulos & Apostolis Philippopoulos & Vanghelis Vassilatos, 2007. "Rent-seeking competition from state coffers in a calibrated DSGE model of the euro area," Working Papers, Business School - Economics, University of Glasgow 2007_29, Business School - Economics, University of Glasgow.
  3. Heijdra, Ben J. & Ligthart, Jenny E., 2010. "The Transitional Dynamics Of Fiscal Policy In Small Open Economies," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 14(01), pages 1-28, February.
  4. J. Stephen Ferris, 2010. "Fiscal Policy from a Public Choice Perspective," Carleton Economic Papers 10-10, Carleton University, Department of Economics.
  5. Wolfgang Eggert & Peter Birch Sørensen, 2007. "The Effects of Tax Competition when Politicians Create Rents to Buy Political Support," EPRU Working Paper Series, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics 07-04, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  6. Eggert, Wolfgang & Sørensen, Peter Birch, 2008. "The effects of tax competition when politicians create rents to buy political support," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1142-1163, June.

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