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Persistent Inequality, Corruption, and Factor Productivity

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  • Elton Dusha

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    I build a model with bequests, financial frictions and corrupt bureaucrats to explain the link between corruption and inequality and its effects on productivity. Because of collateral requirements, profits are determined by wealth. If individual wealth is not publicly observed, taxation is regressive under corruption. When wealth inequality is high, corruption is more prevalent, creating persistent feedback between corruption and inequality. I calibrate the model and investigate the effect of corruption on inequality and TFP. Through regressive taxation, corruption induces wealth levels to inversely affect the productivity selection. This in turn has adverse effects on aggregate TFP. JEL classiffications: E02; E24; H2; O4. Key words: Keywords: inequality, corruption, nancial frictions, productivity, size distribution.

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    File URL: http://www.dii.uchile.cl/~cea/sitedev/cea/www/download.php?file=documentos_trabajo/ASOCFILE120150903160443.pdf
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    Paper provided by Centro de Economía Aplicada, Universidad de Chile in its series Documentos de Trabajo with number 319.

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    Date of creation: 2015
    Handle: RePEc:edj:ceauch:319
    Contact details of provider: Web page: http://www.dii.uchile.cl/cea/

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    1. James R. Tybout, 2000. "Manufacturing Firms in Developing Countries: How Well Do They Do, and Why?," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 11-44, March.
    2. Timothy Besley & Torsten Persson, 2011. "Pillars of Prosperity: The Political Economics of Development Clusters," Economics Books, Princeton University Press, edition 1, number 9624.
    3. Raymond Fisman & Edward Miguel, 2007. "Corruption, Norms, and Legal Enforcement: Evidence from Diplomatic Parking Tickets," Journal of Political Economy, University of Chicago Press, vol. 115(6), pages 1020-1048, December.
    4. Benjamin Moll, 2009. "Creditor Rights, Inequality and Development in a Neoclassical Growth Model," 2009 Meeting Papers 1168, Society for Economic Dynamics.
    5. Hunt, Jennifer & Laszlo, Sonia, 2012. "Is Bribery Really Regressive? Bribery’s Costs, Benefits, and Mechanisms," World Development, Elsevier, vol. 40(2), pages 355-372.
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