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Corruption, uncertainty and growth

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  • Djumashev, R
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    Abstract

    Corruption in the public sector erodes tax compliance and leads to higher tax evasion. Moreover, corrupt public officials abuse their public power to extort bribes from the private agents. In both types of interaction with the public sector, the private agents are bound to face uncertainty with respect to their disposable incomes. To analyse effects of this uncertainty, a stochastic dynamic growth model with the public sector is examined. It is shown that deterministic excessive red tape and corruption deteriorate the growth potential through income redistribution and public sector inefficiencies. Most importantly, it is demonstrated that the increase in corruption via higher uncertainty exerts adverse effects on capital accumulation, thus leading to lower growth rates.

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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 3716.

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    Date of creation: 26 Jun 2007
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    Handle: RePEc:pra:mprapa:3716

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    Keywords: Corruption; growth; public goods; tax evasion; uncertainty;

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