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Anti-corruption policy and economic growth

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  • Gustaffsson, Johan
  • Prettner, Klaus
  • Xu, Fei

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

  • Gustaffsson, Johan & Prettner, Klaus & Xu, Fei, 2025. "Anti-corruption policy and economic growth," Department of Economics Working Paper Series 380, WU Vienna University of Economics and Business.
    • Handle: RePEc:wiw:wus005:76354364
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