Corruption, fiscal policy, and growth: a unified approach

Ghosh Sugata () and Kyriakos Neanidis
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Ghosh Sugata: Department of Economics and Finance, Brunel University, and Centre for Economic Development and Institutions, Middlesex, United Kingdom

The B.E. Journal of Macroeconomics, 2017, vol. 17, issue 2, 24

Abstract: We study the effects of bureaucratic corruption on fiscal policy and economic growth, where corruption (i) reduces the tax revenue raised from households, (ii) inflates the volume of government spending, and (iii) reduces the productivity of “effective” government expenditure. We distinguish between the policies pursued by (a) a non-optimizing, and (b) an optimizing government. For both cases, corruption leads to higher income tax and inflation rates and a lower level of government spending, thus hindering growth. In the circumstances, an activist government could allocate its resources in attempting to reduce the type of corruption that harms growth the most. Finally, the findings from our unified framework could rationalize the sometimes conflicting empirical evidence on the impact of corruption on growth in the literature.

Keywords: corruption; economic growth; non-optimizing and optimizing government; public expenditure and revenue (search for similar items in EconPapers)
JEL-codes: D73 E60 O42 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Corruption, Fiscal Policy, and Growth: A Unified Approach (2013)
Working Paper: Corruption, Fiscal Policy, and Growth: A Unified Approach (2010)
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DOI: 10.1515/bejm-2016-0010

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