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Corruption and Transparency in a Growth Model

  • Christopher Ellis

    ()

  • John Fender

    ()

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    We develop a Ramsey type model of economic growth in which the “Engine of Growth” is public capital accumulation. Public capital is a public good, and is financed by taxes on private output. The government may either use the taxes gathered to fund public capital accumulation or consume the resourses itself; that is engage in corruption. There is an irreducable level of endogenously determined corruption which constitutes rents for which potential governments compete. This competition takes the form of choosing a time path for public capital invesment, which implies time paths for output and household consumption. We study both the model’s steady state, and dynamical behavior along the saddle path. The predictions of our theory accord well with the existent empirical evidence on the relationships between the level and growth rate of output, corruption, public investment and fiscal transparency. Our analysis also provides a perspective on the transition experiences of several Eastern European economies. Copyright Springer Science + Business Media, Inc. 2006

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    File URL: http://hdl.handle.net/10.1007/s10797-006-1664-z
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    Article provided by Springer in its journal International Tax and Public Finance.

    Volume (Year): 13 (2006)
    Issue (Month): 2 (May)
    Pages: 115-149

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    Handle: RePEc:kap:itaxpf:v:13:y:2006:i:2:p:115-149
    Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=102915

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    1. Toke S. Aidt, 2003. "Economic analysis of corruption: a survey," Economic Journal, Royal Economic Society, vol. 113(491), pages F632-F652, November.
    2. Besley, Timothy & Coate, Stephen, 1997. "An Economic Model of Representative Democracy," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 85-114, February.
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    6. Vito Tanzi, 1998. "Corruption Around the World; Causes, Consequences, Scope, and Cures," IMF Working Papers 98/63, International Monetary Fund.
    7. repec:wdi:papers:2002-470 is not listed on IDEAS
    8. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August.
    9. 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.
    10. Thierry Verdier & Daron Acemoglu, 2000. "The Choice between Market Failures and Corruption," American Economic Review, American Economic Association, vol. 90(1), pages 194-211, March.
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    12. Ritva Reinikka & Jakob Svensson, 2004. "Local Capture: Evidence From a Central Government Transfer Program in Uganda," The Quarterly Journal of Economics, MIT Press, vol. 119(2), pages 678-704, May.
    13. Paolo Mauro, 2002. "The Persistence of Corruption and Slow Economic Growth," IMF Working Papers 02/213, International Monetary Fund.
    14. Barreto, Raul A., 2000. "Endogenous corruption in a neoclassical growth model," European Economic Review, Elsevier, vol. 44(1), pages 35-60, January.
    15. Osborne, Martin J & Slivinski, Al, 1996. "A Model of Political Competition with Citizen-Candidates," The Quarterly Journal of Economics, MIT Press, vol. 111(1), pages 65-96, February.
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    18. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, August.
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