Tarhan, Simge (2008): Public investment and corruption in an endogenous growth model.
This is the latest version of this item.
Download (244kB) | Preview
High capital spending is favored by economists and politicians for its beneficial effects on economic growth. However, there is empirical research associating high levels of public investment with low economic growth due to corruption. I provide an endogenous growth model with Ramsey taxation that is consistent with this empirical finding. In the model, government maximizes the weighted average of consumers' utility and its own utility coming from expropriation of tax revenues. The weight determines the benevolence of the government. I show that a self-interested government sets a higher public-to-private-capital ratio than a benevolent one, reducing the productivity of public capital, in order to use more of the tax revenues for its own consumption. While a large public-to-private capital ratio increases the productivity of private investment, high taxes that come along with high public capital spending reduce the after-tax returns to private investment, causing the growth rate to be low.
|Item Type:||MPRA Paper|
|Original Title:||Public investment and corruption in an endogenous growth model|
|Keywords:||Corruption, Endogenous Growth, Public Investment, Ramsey Taxation|
|Subjects:||D - Microeconomics > D7 - Analysis of Collective Decision-Making > D73 - Bureaucracy; Administrative Processes in Public Organizations; Corruption
E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E62 - Fiscal Policy
H - Public Economics > H0 - General
O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity
|Depositing User:||Simge Tarhan|
|Date Deposited:||20. Oct 2011 02:21|
|Last Modified:||15. Feb 2013 18:53|
Aschauer, D. A. (1989): “Is Public Expenditure Productive?,” Journal of Monetary Economics, 23, 177–200.
Azzimonti-Renzo, M., P.-D. G. Sarte, and J. Soares (2003): “Optimal Public Investment with and without Government Commitment,” Working Paper 03-10, Federal Reserve Bank of Richmond.
Barro, R. J. (1990): “Government Spending in a Simple Model of Endogenous Growth,” Journal of Political Economy, 98, S103–S125.
Barro, R. J., and X. Sala-i Martin (1992): “Public Finance in Models of Economic Growth,” Review of Economic Studies, 59(4), 645–661.
Bose, N., M. E. Haque, and D. R. Osborn (2007): “Public Expenditure and Economic Growth: A Disaggregated Analysis For Developing Countries,” Manchester School, 75(5), 533–556.
Chari, V. V., and P. J. Kehoe (1999): “Optimal Fiscal and Monetary Policy,” in Handbook of Macroeconomics, ed. by J. B. Taylor, and M. Woodford, vol. 1, chap. 26, pp. 1671–1745. Elsevier.
Devarajan, S., V. Swaroop, and H.-F. Zou (1996): “The Composition of Public Expenditure and Economic Growth,” Journal of Monetary Economics, 37(2-3), 313–344.
Easterly, W. (2001): “The Lost Decades: Developing Countries’ Stagnation in Spite of Policy Reform 1980-1998,” Journal of Economic Growth, 6(2), 135–57.
Easterly, W., and S. Rebelo (1993): “Fiscal Policy and Economic Growth,” Journal of Monetary Economics, 32, 417–458.
Economides, G., H. Park, and A. Philippopoulos (2011): “How Should The Government Allocate Its Tax Revenues Between Productivity-Enhancing And Utility-Enhancing Public Goods?,” Macroeconomic Dynamics, 15(03), 336–364.
Eicher, T., and S. J. Turnovsky (2000): “Scale, Congestion and Growth,” Economica, 67(267), 325–46.
Everhart, S. S., and M. A. Sumlinski (2001): “Trends in Private Investment in Developing Countries: Statistics for 1970-2000,” Discussion Paper 44, World Bank - International Finance Corporation.
Fisher, W. H., and S. J. Turnovsky (1998): “Public Investment, Congestion, and Private Capital Accumulation,” Economic Journal, 108(447), 399–413.
Fredriksson, P. G., and J. Svensson (2003): “Political Instability, Corruption and Policy Formation: The Case of Environmental Policy,” Journal of Public Economics, 87(7-8), 1383–1405.
Futagami, K., Y. Morita, and A. Shibata (1993): “Dynamic Analysis of an Endogenous Growth Model with Public Capital,” Scandinavian Journal of Economics, 95(4), 607–25.
Ghosh, S., and A. Gregoriou (2008): “The Composition of Government Spending and Growth: Is Current or Capital Spending Better?,” Oxford Economic Papers, 60, 484–516.
Glomm, G., and B. Ravikumar (1994): “Public Investment in Infrastructure in a Simple Growth Model,” Journal of Economic Dynamics and Control, 18(6), 1173–1187.
Glomm, G., and B. Ravikumar (1997): “Productive Government Expenditures and Long-run Growth,” Journal of Economic Dynamics and Control, 21(1), 183–204.
Gwartney, J., J. Hall, and R. Lawson (2011): “2011 Economic Freedom Dataset,” in Economic Freedom of the World: 2010 Annual Report. Economic Freedom Network.
Haque, M. E., and R. Kneller (2008): “Public Investment and Growth: The Role of Corruption,” Centre for Growth and Business Cycle Research Discussion Paper Series 98, Economics, The University of Manchester.
Heston, A., R. Summers, and B. Aten (2006): Penn World Table Version 6.2, Center for International Comparisons of Production, Income and Prices at the University of Pennsylvania.
Keefer, P., and S. Knack (2007): “Boondoggles, Rent-Seeking, and Political Checks and Balances: Public Investment under Unaccountable Governments,” The Review of Economics and Statistics, 89(3), 566–572.
Knack, S. (2007): “Measuring Corruption: A Critique of Indicators in Eastern Europe and Central Asia,” Journal of Public Policy, 27(03), 255–291.
Kneller, R., M. F. Bleaney, and N. Gemmell (1999): “Fiscal Policy and Growth: Evidence from OECD Countries,” Journal of Public Economics, 74(2), 171–190.
Mauro, P. (1995): “Corruption and Growth,” The Quarterly Journal of Economics, 110(3), 681–712.
Mauro, P. (1997): “The Effects of Corruption on Growth, Investment, and Government Expenditure,” in Corruption and the Global Economy, ed. by K. A. Elliott. Institute of International Economics, Washington D.C.
Mauro, P. (1998): “Corruption and the Composition of Government Expenditure,” Journal of Public Economics, 69(2), 263–279.
Mauro, P. (2004): “The Persistence of Corruption and Slow Economic Growth,” IMF Staff Papers, 51(1).
Munnell, A. H. (1992): “PolicyWatch: Infrastructure Investment and Economic Growth,” The Journal of Economic Perspectives, 6(4), 189–198.
Park, H., and A. Philippopoulos (2003): “On the Dynamics of Growth and Fiscal Policy with Redistributive Transfers,” Journal of Public Economics, 87(3-4), 515–538.
Tanzi, V., and H. R. Davoodi (1997): “Corruption, Public Investment, and Growth,” IMF Working Papers 97/139, International Monetary Fund.
Turnovsky, S. J., and W. H. Fisher (1995): “The Composition of Government Expenditure and Its Consequences for Macroeconomic Performance,” Journal of Economic Dynamics and Control, 19(4), 747–786.
Available Versions of this Item
Public Investment and Corruption in an Endogenous Growth Model. (deposited 12. Mar 2010 14:41)
Public Investment and Corruption in an Endogenous Growth Model. (deposited 08. Dec 2010 01:30)
Public investment and corruption in an endogenous growth model. (deposited 07. Dec 2010 20:26)
- Public investment and corruption in an endogenous growth model. (deposited 20. Oct 2011 02:21) [Currently Displayed]
- Public investment and corruption in an endogenous growth model. (deposited 07. Dec 2010 20:26)
- Public Investment and Corruption in an Endogenous Growth Model. (deposited 08. Dec 2010 01:30)