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The Two-Way Relationship Between Government Spending And Corruption And Its Effects On Economic Growth

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  • RATBEK DZHUMASHEV

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type="main" xml:lang="en"> The existing empirical evidence suggests that in low-income economies, an increase in government spending leads to a reduction of growth. This article aims to explain this empirical fact by considering a growth model that incorporates a two-way relationship between corruption and government spending. That is, government spending gives rise to corruption and rent seeking, which feeds back by distorting the structure and size of government spending. In addition, the cost of corruption depends on the wage rate. Therefore, in low-income economies, increases in government spending tend to generate larger social losses caused by a higher level of rent dissipation and a concomitant rise in corruption and government inefficiency. Consequently, in such economies, an increase in government spending is more likely to result in a decline of economic growth. (JEL H3, O11, O41)

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  • Ratbek Dzhumashev, 2014. "The Two-Way Relationship Between Government Spending And Corruption And Its Effects On Economic Growth," Contemporary Economic Policy, Western Economic Association International, vol. 32(2), pages 403-419, April.
  • Handle: RePEc:bla:coecpo:v:32:y:2014:i:2:p:403-419
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    Cited by:

    1. Varvarigos, Dimitrios & Arsenis, Panagiotis, 2015. "Corruption, fertility, and human capital," Journal of Economic Behavior & Organization, Elsevier, vol. 109(C), pages 145-162.
    2. Anastasiya Penska, 2015. "Determinants of Corruption in Ukrainian Regions: Spatial Analysis," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 42.
    3. Keita Kouramoudou, 2017. "Does Corruption Affect Total Factor Productivity? An Empirical Analysis," Working Papers 1714, University of Tampere, School of Management, Economics.
    4. repec:eee:ecmode:v:70:y:2018:i:c:p:571-578 is not listed on IDEAS
    5. Cooray, Arusha & Dzhumashev, Ratbek & Schneider, Friedrich, 2017. "How Does Corruption Affect Public Debt? An Empirical Analysis," World Development, Elsevier, vol. 90(C), pages 115-127.
    6. repec:agr:journl:v:1(614):y:2018:i:1(614):p:167-182 is not listed on IDEAS

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    JEL classification:

    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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