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Persistent Inequality, Corruption, and Factor Productivity

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  • Dusha Elton

    (Department of Economics, Universidad Diego Portales, Santiago, Chile)

Abstract

I build a model with bequests, financial frictions and corrupt bureaucrats to explain the link between corruption and inequality and its effects on productivity. Because of collateral requirements, profits are determined by wealth. If individual wealth is not publicly observed, taxation is regressive under corruption. When wealth inequality is high, corruption is more prevalent, creating persistent feedback between corruption and inequality. I calibrate the model and investigate the effect of corruption on inequality and TFP. Through regressive taxation, corruption induces wealth levels to inversely affect the productivity selection. This in turn has adverse effects on aggregate TFP.

Suggested Citation

  • Dusha Elton, 2019. "Persistent Inequality, Corruption, and Factor Productivity," The B.E. Journal of Macroeconomics, De Gruyter, vol. 19(2), pages 1-23, June.
    • Handle: RePEc:bpj:bejmac:v:19:y:2019:i:2:p:23:n:5
    DOI: 10.1515/bejm-2018-0021
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    Keywords

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    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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