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Rent Seeking, Tax Policy, and Economic Growth

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Abstract

It is suggested a Romer-Barro - type model of endogenous economic growth where producers contest for distribution of a fixed share of the government’s tax revenue. The proportional contest mechanism is assumed. We studied conditions under which consumers gain or lose due to existence of the Rent seeking, tax policy, and economic growth (RS) opportunities. It is found that RS always decreases rate of growth but nevertheless may raise consumer’s overall utility. RS is advantageous if tax rate is too high or rate of production return is too low. The area of parameters, where RS has positive effect, is larger for more impatient consumers. We study also a static RS production model with heterogeneous producers and show that excessive tax burden creates incentives for RS (which is interpreted as corruption). It is argued that the producers’ support of corruption-free regimes depends on the marginal cost elasticity of the production technologies and may be reached due to technical progress. The results demonstrate that the connection, observed in a number of empirical papers, between economic development and RS may be two - way since it may be caused by factors that influence both RS and economic growth.

Suggested Citation

  • Polterovich, Victor, 2001. "Rent Seeking, Tax Policy, and Economic Growth," MPRA Paper 20058, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:20058
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    References listed on IDEAS

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    Cited by:

    1. Pyastolov Sergey & Shitenkova Elena, 2012. "Power – property core of economic development: the cases of Russia and South Korea," Journal of Economic Regulation Journal of Economic Regulation (Вопросы регулирования экономики), CyberLeninka;Общество с ограниченной ответственностью «Гуманитарные перспективы», vol. 3(4), pages 93-108.
    2. ISKAKOV, Mikhail & ISKAKOV, Alexey & ZAKHAROV, Alexey, 2014. "Equilibria in secure strategies in the Tullock contest," CORE Discussion Papers 2014010, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    3. Sonin, Konstantin, 2003. "Why the rich may favor poor protection of property rights," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 715-731, December.
    4. Polterovich, Victor, 2005. "К Руководству Для Реформаторов: Некоторые Выводы Из Теории Экономических Реформ
      [Towards a Manual for Reformers: Some Conclusions from the Theory of Economic Reform]
      ," MPRA Paper 22033, University Library of Munich, Germany.
    5. Polterovich, Victor, 2004. "Институциональные Ловушки: Есть Ли Выход?
      [Institutional Traps: Is There a Way Out?]
      ," MPRA Paper 22071, University Library of Munich, Germany.

    More about this item

    Keywords

    Endogenous economic growth; rent seeking;

    JEL classification:

    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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