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On the Optimal Size of Public Sector under Rent-Seeking competition from State Coffers

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Author Info

  • Hyun Park
  • Apostolis Philippopoulos
  • Vangelis Vassilatos

Abstract

This paper incorporates competition for fiscal transfers (or, equivalently, rent seeking from state coffers) into a standard general equilibrium model of economic growth and endogenously chosen fiscal policy. The government generates tax revenues, but then each selfinterested individual agent tries to extract, for his own personal benefit, a fraction of these revenues. Extracted tax revenues could alternatively be used to finance economy-wide infrastructure. We look at a Nash equilibrium in individual agents’ behavior, and then investigate what the society should do to discourage rent-seeking competition. The focus is on the optimal size of public sector.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2003/wp-cesifo-2003-07/cesifo_wp991.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 991.

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Date of creation: 2003
Date of revision:
Handle: RePEc:ces:ceswps:_991

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Related research

Keywords: social conflict; fiscal policy; economic growth;

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References

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  1. Pierre-Daniel G. Sarte, 1998. "Rent seeking bureaucracies and oversight in a simple growth model," Working Paper, Federal Reserve Bank of Richmond 98-03, Federal Reserve Bank of Richmond.
  2. Persson, Torsten & Tabellini, Guido, 1999. "Political economics and macroeconomic policy," Handbook of Macroeconomics, Elsevier, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 22, pages 1397-1482 Elsevier.
  3. Philip R. Lane & Aaron Tornell, 1999. "The Voracity Effect," American Economic Review, American Economic Association, American Economic Association, vol. 89(1), pages 22-46, March.
  4. Thierry Verdier & Daron Acemoglu, 2000. "The Choice between Market Failures and Corruption," American Economic Review, American Economic Association, American Economic Association, vol. 90(1), pages 194-211, March.
  5. Tornell, Aaron & Velasco, Andes, 1992. "The Tragedy of the Commons and Economic Growth: Why Does Capital Flow from Poor to Rich Countries?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 100(6), pages 1208-31, December.
  6. Knack, Stephen & Keefer, Philip, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(4), pages 1251-88, November.
  7. Zak, Paul J & Knack, Stephen, 2001. "Trust and Growth," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 111(470), pages 295-321, April.
  8. Pierre-Daniel G. Sarte, 1999. "Informality and rent-seeking bureaucracies in a model of long-run growth," Working Paper, Federal Reserve Bank of Richmond 99-07, Federal Reserve Bank of Richmond.
  9. Del Monte, Alfredo & Papagni, Erasmo, 2001. "Public expenditure, corruption, and economic growth: the case of Italy," European Journal of Political Economy, Elsevier, Elsevier, vol. 17(1), pages 1-16, March.
  10. Paolo Mauro, 2002. "The Persistence of Corruption and Slow Economic Growth," IMF Working Papers 02/213, International Monetary Fund.
  11. Herschel I. Grossman, 2000. "The Creation of Effective Property Rights," NBER Working Papers 7897, National Bureau of Economic Research, Inc.
  12. Benhabib, Jess & Rustichini, Aldo, 1996. " Social Conflict and Growth," Journal of Economic Growth, Springer, Springer, vol. 1(1), pages 125-42, March.
  13. Cooper, Russell & John, Andrew, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 103(3), pages 441-63, August.
  14. Lane, Philip R & Tornell, Aaron, 1996. " Power, Growth, and the Voracity Effect," Journal of Economic Growth, Springer, Springer, vol. 1(2), pages 213-41, June.
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Cited by:
  1. Konstantinos Angelopoulos & George Economides, 2005. "Rent Seeking, Policy and Growth under Electoral Uncertainty: Theory and Evidence," DEGIT Conference Papers, DEGIT, Dynamics, Economic Growth, and International Trade c010_029, DEGIT, Dynamics, Economic Growth, and International Trade.
  2. Konstantinos Angelopoulos & Apostolis Philippopoulos, 2005. "The Role of Government in Anti-Social Redistributive Activities," CESifo Working Paper Series 1427, CESifo Group Munich.
  3. George Economides & Sarantis Kalyvitis & Apostolis Philippopoulos, 2004. "Do Foreign Aid Transfers Distort Incentives and Hurt Growth? Theory and Evidence from 75 Aid-recipient Countries," CESifo Working Paper Series 1156, CESifo Group Munich.

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