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Anti-corruption policy and economic growth

Author

Listed:
  • Johan Gustafsson

    (Department of Economics, Umea University)

  • Klaus Prettner

    (Department of Economics, Vienna University of Economics and Business)

  • Fei Xu

    (Department of Economics, Umea University)

Abstract

We explore the effects of anti-corruption policies on economic growth and welfare within an R&D-based economic growth framework. The government taxes households to fund infrastructure that can be used in the production of final goods and in R&D. Government officials can embezzle funds and use them for their own consumption purposes. However, this comes at the cost of potentially being detected and facing a corresponding punishment. While public officials endogenously decide on the level of corruption, the state decides on the extent of anti-corruption policies, how severe the punishment is, and the income tax level. We show that there is an interior welfare-maximizing level of the tax rate and of anti-corruption effort. The effect of anti-corruption policies on growth and welfare critically depends on the effectiveness of policies in increasing crime detection and the productivity of infrastructure. If the state decides to invest more in anti-corruption measures or increase the pecuniary punishment, economic growth and welfare may actually decrease.

Suggested Citation

  • Johan Gustafsson & Klaus Prettner & Fei Xu, 2025. "Anti-corruption policy and economic growth," Department of Economics Working Papers wuwp380, Vienna University of Economics and Business, Department of Economics.
    • Handle: RePEc:wiw:wiwwuw:wuwp380
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    More about this item

    Keywords

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    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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