CORRUPTION, UNCERTAINTY AND GROWTH

No 15-07, Monash Economics Working Papers from Monash University, Department of Economics

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.

Keywords: Corruption; growth; public goods; tax evasion; uncertainty (search for similar items in EconPapers)
JEL-codes: D72 D92 E20 E60 G11 H26 H41 O16 O41 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2007
New Economics Papers: this item is included in nep-pbe
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Citations: View citations in EconPapers (6)

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Working Paper: Corruption, uncertainty and growth (2007)
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