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Corruption and growth: The role of governance, public spending, and economic development

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  • Dzhumashev, Ratbek

Abstract

This paper analyses how the quality of governance, the size of public spending, and economic development affect the relationship between bureaucratic corruption and economic growth. The analysis shows that the interaction between corruption and governance shapes the efficiency of public spending, which in turn, determines the growth effects of corruption. Specifically, corruption improves economic efficiency only when the actual government size is above the optimal level. It implies that a growth-maximising level of corruption is possible. This paper also finds that the incidence of corruption declines with economic development. This is because with economic development the wage rate rises and makes private rent seeking costs higher, thereby, discouraging corruption. The main policy implication is that targeting tax evaders instead of bureaucrats is more effective in terms of both reducing corruption and improving the growth potential of an economy.

Suggested Citation

  • Dzhumashev, Ratbek, 2014. "Corruption and growth: The role of governance, public spending, and economic development," Economic Modelling, Elsevier, vol. 37(C), pages 202-215.
  • Handle: RePEc:eee:ecmode:v:37:y:2014:i:c:p:202-215
    DOI: 10.1016/j.econmod.2013.11.007
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    Cited by:

    1. 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.
    2. repec:eee:ecmode:v:70:y:2018:i:c:p:571-578 is not listed on IDEAS
    3. Huang, Chiung-Ju, 2016. "Is corruption bad for economic growth? Evidence from Asia-Pacific countries," The North American Journal of Economics and Finance, Elsevier, vol. 35(C), pages 247-256.
    4. repec:ers:journl:v:xx:y:2017:i:3a:p:443-459 is not listed on IDEAS
    5. Varvarigos, Dimitrios & Arsenis, Panagiotis, 2015. "Corruption, fertility, and human capital," Journal of Economic Behavior & Organization, Elsevier, vol. 109(C), pages 145-162.
    6. repec:ers:journl:v:xx:y:2017:i:3b:p:421-431 is not listed on IDEAS
    7. repec:eee:ecmode:v:66:y:2017:i:c:p:42-60 is not listed on IDEAS
    8. Garcia Fortuny, Judit, 2014. "The Effects of Corruption and Seigniorage on Growth and Inflation," Working Papers 2072/246961, Universitat Rovira i Virgili, Department of Economics.

    More about this item

    Keywords

    Corruption; Development; Governance; Economic growth;

    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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