Redistribution to Rent Seekers, Foreign Aid and Economic Growth
AbstractThis paper analyzes the consequences of redistribution of public funds to rent seekers. Therefore, it introduces redistribution to rent seeking agents into Barro's (1990) endogenous growth model with a productive public sector. It shows that the growth rate decreases in the share of the public funds that is redistributed. The public sector's relative sizes that maximize growth and welfare become also smaller in presence of redistribution. Further, if foreign aid is added to the model, the relationship between aid and growth turns out to be inverted-U shaped under reasonable policy assumptions, which is consistent with the finding of an Aid Laffer Curve by some recent empirical studies
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Rent seeking; Growth; Foreign Aid; Fiscal Policy;
Find related papers by JEL classification:
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- D9 - Microeconomics - - Intertemporal Choice
- F35 - International Economics - - International Finance - - - Foreign Aid
- H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-05-02 (All new papers)
- NEP-DEV-2004-05-02 (Development)
- NEP-LAM-2004-05-02 (Central & South America)
- NEP-POL-2004-05-02 (Positive Political Economics)
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