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Corruption, Fiscal Policy, and Growth: A Unified Approach


  • Sugata Ghosh


  • Kyriakos C. Neanidis



In this paper, we study the effects of bureaucratic corruption on fiscal policy and the subsequent impact on economic growth. Here corruption takes three forms: (i) it reduces the tax revenue raised from households, (ii) it inflates the volume of government spending, and (iii) it reduces the productivity of ‘effective’ government expenditure. The analysis distinguishes between the case where fiscal choices are determined exogenously to ensure a balanced budget and the case where the government optimally sets its policy instruments. Our policy experiments reveal that for both cases, corruption affects fiscal policy and growth in similar ways, in particular, through higher income tax and inflation rates, and a lower level of government spending. The findings from our unified framework could rationalise the diverse empirical evidence on the impact of corruption on economic growth in the literature.

Suggested Citation

  • Sugata Ghosh & Kyriakos C. Neanidis, 2013. "Corruption, Fiscal Policy, and Growth: A Unified Approach," CEDI Discussion Paper Series 13-05, Centre for Economic Development and Institutions(CEDI), Brunel University.
  • Handle: RePEc:edb:cedidp:13-05

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    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models

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