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A Growth Model with Corruption in Public Procurement: Equilibria and Policy Implications

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  • Serena Brianzoni

    (Universita' Politecnica delle Marche)

  • Raffaella Coppier

    (Universita' di Macerata)

  • Elisabetta Michetti

    (Universita' di Macerata)

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    Abstract

    We study the relationship between corruption in public procurement and economic growth, within the Solow framework in discrete time, while assuming that the public good is an input in the productive process and that the State fixes a monitoring level on corruption depending on the tax revenues. The resulting model is a two-dimensional, continuous and piecewise smooth map describing the evolution of the capital per capita and that of the corruption level. We study model from the analytical point of view: we determine its fixed points, we study their local stability and, finally, we find conditions on parameters such that multiple equilibria co-exist. We also present numerical simulations useful to explain the role of parameters in the long{run path of the model and to analyze the structure of the basins of attraction when multiple equilibria emerge. Our study aims at demonstrating that stable equilibria with positive corruption may exist (according to empirical evidence), even though the State may reduce corruption by increasing the wage of the bureaucrat or by increasing the amount of tax revenues used to monitor corruption.

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    Bibliographic Info

    Paper provided by Macerata University, Department of Finance and Economic Sciences in its series Working Papers with number 68-2012.

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    Length: 21
    Date of creation: Nov 2012
    Date of revision: Nov 2012
    Handle: RePEc:mcr:wpdief:wpaper00068

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    1. Barro, Robert J., 1990. "Government Spending in a Simple Model of Endogeneous Growth," Scholarly Articles 3451296, Harvard University Department of Economics.
    2. Celentani, Marco & Ganuza, Juan-Jose, 2002. "Corruption and competition in procurement," European Economic Review, Elsevier, vol. 46(7), pages 1273-1303, July.
    3. Auriol, E., 1998. "Corruption in Procurement and Public Purchase," G.R.E.Q.A.M. 98a29, Universite Aix-Marseille III.
    4. Shang-Jin Wei, 1997. "How Taxing is Corruption on International Investors?," William Davidson Institute Working Papers Series 63, William Davidson Institute at the University of Michigan.
    5. Paolo Mauro, 2002. "The Persistence of Corruption and Slow Economic Growth," IMF Working Papers 02/213, International Monetary Fund.
    6. T. W. Swan, 1956. "ECONOMIC GROWTH and CAPITAL ACCUMULATION," The Economic Record, The Economic Society of Australia, vol. 32(2), pages 334-361, November.
    7. Bose, Niloy & Capasso, Salvatore & Murshid, Antu Panini, 2008. "Threshold Effects of Corruption: Theory and Evidence," World Development, Elsevier, vol. 36(7), pages 1173-1191, July.
    8. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August.
    9. 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.
    10. Rose-Ackerman, Susan, 1975. "The economics of corruption," Journal of Public Economics, Elsevier, vol. 4(2), pages 187-203, February.
    11. Medio,Alfredo & Lines,Marji, 2001. "Nonlinear Dynamics," Cambridge Books, Cambridge University Press, number 9780521551861, October.
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