On the cost of rent-seeking by government bureaucrats in a Real-Business-Cycle framework

Aleksandar Vasilev

No 2013-84, SIRE Discussion Papers from Scottish Institute for Research in Economics (SIRE)

Abstract: This paper studies the wasteful e ffect of bureaucracy on the economy by addressing the link between rent-seeking behavior of government bureaucrats and the public sector wage bill, which is taken to represent the rent component. In particular, public o fficials are modeled as individuals competing for a larger share of those public funds. The rent-seeking extraction technology in the government administration is modeled as in Murphy et al. (1991) and incorporated in an otherwise standard Real-Business-Cycle (RBC) framework with public sector. The model is calibrated to German data for the period 1970-2007. The main fi ndings are: (i) Due to the existence of a signi ficant public sector wage premium and the high public sector employment, a substantial amount of working time is spent rent-seeking, which in turn leads to signifi cant losses in terms of output; (ii) The measures for the rent-seeking cost obtained from the model for the major EU countries are highly-correlated to indices of bureaucratic ineffi ciency; (iii) Under the optimal scal policy regime,steady-state rent-seeking is smaller relative to the exogenous policy case, as the government chooses a higher public wage premium, but sets a much lower public employment, thus achieving a decrease in rent-seeking.

Keywords: Rent-seeking; bureaucracy; public employment; government wages (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-dge
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: On the cost of rent-seeking by government bureaucrats in a Real-Business-Cycle framework (2013)
Working Paper: On the cost of rent-seeking by government bureaucrats in a Real-Business-Cycle framework (2013)
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