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Corruption and Transparency in a Growth Model

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  • Christopher J. Ellis

    () (University of Oregon Economics Department)

  • John Fender

    (University of Birmingham Economics Department)

Abstract

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 existant empirical evidence on the relationships between the level and growth rate of output, corruption, public investment and fiscal transparency. Our analysis also does a good job of explaining the transition experiences of several Eastern European economies.

Suggested Citation

  • Christopher J. Ellis & John Fender, 2003. "Corruption and Transparency in a Growth Model," University of Oregon Economics Department Working Papers 2003-13, University of Oregon Economics Department.
  • Handle: RePEc:ore:uoecwp:2003-13
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    File URL: http://economics.uoregon.edu/papers/UO-2003-13_Ellis_Corruption.pdf
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    References listed on IDEAS

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    Cited by:

    1. Cerqueti, Roy & Coppier, Raffaella, 2011. "Economic growth, corruption and tax evasion," Economic Modelling, Elsevier, pages 489-500.
    2. Turhan Kaymak & Eralp Bektas, 2015. "Corruption in Emerging Markets: A Multidimensional Study," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 124(3), pages 785-805, December.
    3. Davide Infante & Janna Smirnova, 2010. "Market Failures within Poor Institutions: The Effects of Bureaucrats’ Rent-seeking Activity," Chapters,in: Institutional and Social Dynamics of Growth and Distribution, chapter 5 Edward Elgar Publishing.
    4. Steve Billon & Robert Gillanders, 2016. "State ownership and corruption," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(6), pages 1074-1092, December.
    5. repec:bpj:bejmac:v:17:y:2017:i:2:p:24:n:7 is not listed on IDEAS
    6. Ghosh Sugata & Neanidis Kyriakos C., 2017. "Corruption, fiscal policy, and growth: a unified approach," The B.E. Journal of Macroeconomics, De Gruyter, pages 1-24.
    7. Keisuke Okada & Sovannroeun Samreth, 2014. "How Does Corruption Influence the Effect of Foreign Direct Investment on Economic Growth?," Global Economic Review, Taylor & Francis Journals, vol. 43(3), pages 207-220, September.
    8. Antonio Acconcia, 2006. "Endogenous Corruption and Tax Evasion in a Dynamic Model," CSEF Working Papers 154, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 01 Nov 2006.
    9. Jan Hanousek & Evžen Kočenda, 2011. "Public Investment and Fiscal Performance in the New EU Member States," Fiscal Studies, Institute for Fiscal Studies, pages 43-71.
    10. repec:eee:enepol:v:110:y:2017:i:c:p:79-89 is not listed on IDEAS
    11. Roland Hodler, 2007. "Rent seeking and aid effectiveness," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(5), pages 525-541, October.
    12. Joseph G. ATTILA, 2008. "Corruption, taxation and economic growth: theory and evidence," Working Papers 200829, CERDI.
    13. Aidt, T.S., 2010. "Corruption and Sustainable Development," Cambridge Working Papers in Economics 1061, Faculty of Economics, University of Cambridge.
    14. Tehou Tekeng, Yves & Sharaf, Mesbah, 2015. "Fiscal Transparency, Measurement and Determinants: Evidence from 27 Developing Countries," Working Papers 2015-2, University of Alberta, Department of Economics.

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    Keywords

    Corruption; Growth; Public Capital;

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