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Corruption, Uncertainty And Growth

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  • Ratbek Dzhumashev

Abstract

Corruption in the public sector erodes tax compliance and leads to higher tax evasion. Moreover, corrupt public officials abuse their public power to extort bribes from the private agents. In both types of interaction with the public sector, the private agents are bound to face uncertainty with respect to their disposable incomes. To analyse effects of this uncertainty, a stochastic dynamic growth model with the public sector is examined. It is shown that deterministic excessive red tape and corruption deteriorate the growth potential through income redistribution and public sector inefficiencies. Most importantly, it is demonstrated that the increase in corruption via higher uncertainty exerts adverse effects on capital accumulation, thus leading to lower growth rates.

Suggested Citation

  • Ratbek Dzhumashev, 2007. "Corruption, Uncertainty And Growth," Monash Economics Working Papers 15-07, Monash University, Department of Economics.
  • Handle: RePEc:mos:moswps:2007-15
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    File URL: http://www.buseco.monash.edu.au/eco/research/papers/2007/1507corruptiondjumashev.pdf
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    References listed on IDEAS

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    Cited by:

    1. Célimène, Fred & Dufrénot, Gilles & Mophou, Gisèle & N'Guérékata, Gaston, 2016. "Tax evasion, tax corruption and stochastic growth," Economic Modelling, Elsevier, vol. 52(PA), pages 251-258.
    2. Keith Blackburn & Yuanyuan Wang, 2009. "Uncertainty, Entrepreneurship and the Organisation of Corruption," Centre for Growth and Business Cycle Research Discussion Paper Series 133, Economics, The Univeristy of Manchester.

    More about this item

    Keywords

    Corruption; growth; public goods; tax evasion; uncertainty;

    JEL classification:

    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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