Corruption and Disposable Risk

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Corruption and Disposable Risk

Author Info

Dzhumashev, Ratbek

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Ratbek Dzhumashev

Abstract

Corrupt bureaucrats manipulate rules and regulations to coerce the private agents to pay bribes. In such an environment the cost of dealing with the public sector is uncertain as the regulations are not observed as they are originally defined. Combined with weak enforcement and compliance, predation of corrupt bureaucrats makes private disposable income volatile. We study this uncertainty within a stochastic dynamic growth model framework, where we generalize the corruption caused uncertainty as a shock to disposable income of agents. Consequently, corruption creates two adverse effects in the economy: higher risks associated with private investments and lower returns on private capital due to increased public burden. Both effects tend to lower the demand for investments, thus long run growth is compromised in the economy with the corrupt public sector.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 11772.

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Date of creation: 26 Nov 2008
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Handle: RePEc:pra:mprapa:11772

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Find related papers by JEL classification:
D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
D99 - Microeconomics - - Intertemporal Choice and Growth - - - Other

This paper has been announced in the following NEP Reports:

NEP-ALL-2008-12-01 (All new papers)
NEP-REG-2008-12-01 (Regulation)

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