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Endogenous corruption in economic development

  • Keith Blackburn
  • Niloy Bose
  • M. Emranul Haque

Purpose – The purpose of this paper is to present an analysis of the joint determination of bureaucratic corruption and economic development. Design/methodology/approach – The analysis is based on a simple model of growth in which bureaucrats are employed as agents of the government to collect taxes from households. Findings – Corruption is reflected in bribery and tax evasion as bureaucrats conspire with households in providing false information to the government. Costly concealment of this activity leads to a loss of resources available for productive investments. The incentive for a bureaucrat to accept a bribe depends on economy-wide outcomes, which, in turn, depend on the number of other bureaucrats who accept bribes. The paper establishes the existence of multiple development regimes, together with the possibility of both history- and frequency-dependent equilibria. The predictions of the analysis accord strongly with recent empirical evidence. Originality/value – The paper provides insights into the issue, and in doing so, makes further inroads to the macroeconomics of misgovernance.

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Article provided by Emerald Group Publishing in its journal Journal of Economic Studies.

Volume (Year): 37 (2010)
Issue (Month): 1 (January)
Pages: 4-25

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Handle: RePEc:eme:jespps:v:37:y:2010:i:1:p:4-25
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  1. Barreto, Raul A., 2000. "Endogenous corruption in a neoclassical growth model," European Economic Review, Elsevier, vol. 44(1), pages 35-60, January.
  2. Cadot, Olivier, 1987. "Corruption as a gamble," Journal of Public Economics, Elsevier, vol. 33(2), pages 223-244, July.
  3. Pierre-Daniel G. Sarte, 1999. "Informality and rent-seeking bureaucracies in a model of long-run growth," Working Paper 99-07, Federal Reserve Bank of Richmond.
  4. Acemoglu, Daron & Verdier, Thierry, 1996. "Property Rights, Corruption and the Allocation of Talent: A General Equilibrium Approach," CEPR Discussion Papers 1494, C.E.P.R. Discussion Papers.
  5. Mookherjee, Dilip & Png, I P L, 1995. "Corruptible Law Enforcers: How Should They Be Compensated?," Economic Journal, Royal Economic Society, vol. 105(428), pages 145-59, January.
  6. Banerjee, Abhijit V, 1997. "A Theory of Misgovernance," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1289-1332, November.
  7. Susanto Basu & David D. Li, 1998. "Corruption in Transition," William Davidson Institute Working Papers Series 161, William Davidson Institute at the University of Michigan.
  8. Isaac Ehrlich & Francis T. Lui, 1999. "Bureaucratic Corruption and Endogenous Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 107(S6), pages S270-S293, December.
  9. Rafael Di Tella & Alberto Ades, 1999. "Rents, Competition, and Corruption," American Economic Review, American Economic Association, vol. 89(4), pages 982-993, September.
  10. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S103-26, October.
  11. Acemoglu, D. & Verdier, T., 1997. "The Choice between Market Failures and Corruption," DELTA Working Papers 97-06, DELTA (Ecole normale supérieure).
  12. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August.
  13. Alberto Ades & Rafael Di Tella, 1997. "The New Economics of Corruption: a Survey and Some New Results," Political Studies, Political Studies Association, vol. 45(3), pages 496-515.
  14. Rose-Ackerman, Susan, 1975. "The economics of corruption," Journal of Public Economics, Elsevier, vol. 4(2), pages 187-203, February.
  15. Beck, Paul J. & Maher, Michael W., 1986. "A comparison of bribery and bidding in thin markets," Economics Letters, Elsevier, vol. 20(1), pages 1-5.
  16. Pranab Bardhan, 1997. "Corruption and Development: A Review of Issues," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1320-1346, September.
  17. Banerjee, A.V., 1997. "A Theory of Misgovernance," Working papers 97-4, Massachusetts Institute of Technology (MIT), Department of Economics.
  18. Andvig, J.C. & Ove Moene, K., 1988. "How Corruption May Corrupt," Memorandum 20/1988, Oslo University, Department of Economics.
  19. Treisman, Daniel, 2000. "The causes of corruption: a cross-national study," Journal of Public Economics, Elsevier, vol. 76(3), pages 399-457, June.
  20. Lien, Da-Hsiang Donald, 1986. "A note on competitive bribery games," Economics Letters, Elsevier, vol. 22(4), pages 337-341.
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