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Corruption and Transparency in a Growth Model

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  • Christopher J. Ellis

    ()
    (University of Oregon Economics Department)

  • John Fender

    (University of Birmingham Economics Department)

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    Abstract

    We develop a Ramsey type model of economic growth in which the "Engine of Growth" is public capital accumulation. Public capital is a public good, and is financed by taxes on private output. The government may either use the taxes gathered to fund public capital accumulation or consume the resourses itself; that is engage in corruption. There is an irreducable level of endogenously determined corruption which constitutes rents for which potential governments compete. This competition takes the form of choosing a time path for public capital invesment, which implies time paths for output and household consumption. We study both the model’s steady state, and dynamical behavior along the saddle path. The predictions of our theory accord well with the existant empirical evidence on the relationships between the level and growth rate of output, corruption, public investment and fiscal transparency. Our analysis also does a good job of explaining the transition experiences of several Eastern European economies.

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    Bibliographic Info

    Paper provided by University of Oregon Economics Department in its series University of Oregon Economics Department Working Papers with number 2003-13.

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    Length: 28
    Date of creation: 10 Jun 2003
    Date of revision:
    Handle: RePEc:ore:uoecwp:2003-13

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    Keywords: Corruption; Growth; Public Capital;

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