Corruption, Public Investment, and Growth

Vito Tanzi and Hamid Davoodi

No 1997/139, IMF Working Papers from International Monetary Fund

Abstract: Corruption, particularly political or “grand” corruption, distorts the entire decision-making process connected with public investment projects. The degree of distortions is higher with weaker auditing institutions. The evidence presented shows that higher corruption is associated with (i) higher public investment; (ii) lower government revenues; (iii) lower expenditures on operations and maintenance; and (iv) lower quality of public infrastructure. The evidence also shows that corruption increases public investment while reducing its productivity. These are five channels through which corruption lowers growth. An implication is that economists should be more restrained in their praise of high public sector investment, especially in countries with high corruption.

Keywords: WP; corruption index; investment; spending; GDP; capital; Corruption; public investment; growth; productivity; government revenue-GDP ratio; investment budget; corruption-investment relationship; infrastructure investment; Public investment spending; Capital spending; Infrastructure; Current spending; Global (search for similar items in EconPapers)
Pages: 23
Date: 1997-10-01
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Citations: View citations in EconPapers (471)

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