The Effects of Corruption in a Monetary Union

Judit Garcia Fortuny

Working Papers from Universitat Rovira i Virgili, Department of Economics

Abstract: Many countries around the world suffer from corruption. In a monetary union, corruption varies from one country to another. It is possible corruption in one country may affect another country in a monetary union. We demonstrate that this feature has important implications in a monetary union with two asymmetric countries. Country 1 has a corrupted government while country 2 does not. Within this framework, we determine under which conditions corruption damages or benefits both countries. We find that corruption in country 1 may have a positive or negative effect on country 2. In particular, when the government of country 1 is much more concerned about public spending than output, corruption damages both countries. In addition, we investigate how country 1 could compensate country 2 for the negative externality. JEL classification: D60, D73, E52, E58, E62. Keywords: Corruption; Fiscal Policy; Monetary Policy; Monetary Union.

Keywords: Corrupció; Unions monetàries; Política fiscal; Política monetària; 33 - Economia (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-mac
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http://hdl.handle.net/2072/254374

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Journal Article: The Effects of Corruption in a Monetary Union (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:urv:wpaper:2072/254374

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