A Theory of the Corrupt Keynesian
We evaluate the impact of real business cycle shocks on corruption and economic policy in a model of entry regulation in a representative democracy. We .nd that corruption is procyclical and regulation policy is counter-cyclical. Corrupt politicians engage in excessive stabilization of aggregate fluctuations and behave as if they were Keynesian. We also find that business cycle shocks can induce political instability with politicians losing office in recessions.
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