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The Effects of Corruption in a Monetary Union

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  • Garcia Fortuny, Judit

Abstract

Many countries around the world suffer from corruption. In a monetary union, corruption varies from one country to another. It is possible corruption in one country may affect another country in a monetary union. We demonstrate that this feature has important implications in a monetary union with two asymmetric countries. Country 1 has a corrupted government while country 2 does not. Within this framework, we determine under which conditions corruption damages or benefits both countries. We find that corruption in country 1 may have a positive or negative effect on country 2. In particular, when the government of country 1 is much more concerned about public spending than output, corruption damages both countries. In addition, we investigate how country 1 could compensate country 2 for the negative externality. JEL classification: D60, D73, E52, E58, E62. Keywords: Corruption; Fiscal Policy; Monetary Policy; Monetary Union.

Suggested Citation

  • Garcia Fortuny, Judit, 2015. "The Effects of Corruption in a Monetary Union," Working Papers 2072/254374, Universitat Rovira i Virgili, Department of Economics.
    • Handle: RePEc:urv:wpaper:2072/254374
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    More about this item

    Keywords

    Corrupció; Unions monetàries; Política fiscal; Política monetària; 33 - Economia;
    All these keywords.

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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