Tarhan, Simge (2008): Public investment and corruption in an endogenous growth model.
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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|
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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)