Redistribution to Rent Seekers, Foreign Aid and Economic Growth

Roland Hodler

Diskussionsschriften from Universitaet Bern, Departement Volkswirtschaft

Abstract: This paper analyzes the consequences of redistribution of public funds to rent seekers. Therefore, it introduces redistribution to rent seeking agents into Barro's (1990) endogenous growth model with a productive public sector. It shows that the growth rate decreases in the share of the public funds that is redistributed. The public sector's relative sizes that maximize growth and welfare become also smaller in presence of redistribution. Further, if foreign aid is added to the model, the relationship between aid and growth turns out to be inverted-U shaped under reasonable policy assumptions, which is consistent with the finding of an Aid Laffer Curve by some recent empirical studies

Keywords: Rent seeking; Growth; Foreign Aid; Fiscal Policy (search for similar items in EconPapers)
JEL-codes: D72 D9 F35 H30 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev, nep-lam and nep-pol
Date: 2004-04
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Persistent link: http://EconPapers.repec.org/RePEc:ube:dpvwib:dp0406

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