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Persistent Inequality, Corruption, and Factor Productivity

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  • Elton Dusha

Abstract

I build a model with bequests, financial frictions and corrupt bureaucrats to explain the link between corruption and inequality and its effects on productivity. Because of collateral requirements, profits are determined by wealth. If individual wealth is not publicly observed, taxation is regressive under corruption. When wealth inequality is high, corruption is more prevalent, creating persistent feedback between corruption and inequality. I calibrate the model and investigate the effect of corruption on inequality and TFP. Through regressive taxation, corruption induces wealth levels to inversely affect the productivity selection. This in turn has adverse effects on aggregate TFP. JEL classiffications: E02; E24; H2; O4. Key words: Keywords: inequality, corruption, nancial frictions, productivity, size distribution.

Suggested Citation

  • Elton Dusha, 2015. "Persistent Inequality, Corruption, and Factor Productivity," Documentos de Trabajo 319, Centro de Economía Aplicada, Universidad de Chile.
    • Handle: RePEc:edj:ceauch:319
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    Cited by:

    1. Hauk, Esther & Oviedo, Mónica & Ramos, Xavier, 2022. "Perception of corruption and public support for redistribution in Latin America," European Journal of Political Economy, Elsevier, vol. 74(C).

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    Keywords

    keywords: inequality; corruption; nancial frictions; productivity; size distribution.;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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