Persistent Inequality, Corruption, and Factor Productivity

Dusha Elton ()
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Dusha Elton: Department of Economics, Universidad Diego Portales, Santiago, Chile

The B.E. Journal of Macroeconomics, 2019, vol. 19, issue 2, 23

Abstract: I build a model with bequests, financial frictions and corrupt bureaucrats to explain the link between corruption and inequality and its effects on productivity. Because of collateral requirements, profits are determined by wealth. If individual wealth is not publicly observed, taxation is regressive under corruption. When wealth inequality is high, corruption is more prevalent, creating persistent feedback between corruption and inequality. I calibrate the model and investigate the effect of corruption on inequality and TFP. Through regressive taxation, corruption induces wealth levels to inversely affect the productivity selection. This in turn has adverse effects on aggregate TFP.

Keywords: corruption; financial frictions; inequality; productivity; size distribution (search for similar items in EconPapers)
JEL-codes: E02 E24 H2 O4 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1515/bejm-2018-0021

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