Bureaucracy, Underground Activities, and Fluctuations

Soldatos, Gerasimos T. (2014): Bureaucracy, Underground Activities, and Fluctuations. Published in: Atlantic Review of Economics/ Revista Atlántica de Economía , Vol. 13, No. 2 (2014): pp. 331-339.

Abstract

This is a note on corruption and underground economy in a Kaldor-type model of the business cycle. It appears that when the economy is booming and underground activities seek to enter the official economy, bureaucrats have the upper hand but until underground businesses cannot tolerate bureaucrats anymore and start reentering the informal sector. This is what checks the growth of the official output and gets it into its downward phase. Once in this phase, bureaucrats lose control and just follow passively the developments in the economy. At the trough of the contraction, official activities reach their nadir whereas the unofficial ones are at their zenith and seek to buy whatever has been left from the staggering official businesses. This is what leads to recovery in the absence of stabilization policies.

• Item Type: MPRA Paper
• Language: English
• Keywords: Bureaucracy, Corruption, Underground Economy, Business Cycle
• Subjects: D - Microeconomics > D7 - Analysis of Collective Decision-Making > D73 - Bureaucracy ; Administrative Processes in Public Organizations ; Corruption; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O17 - Formal and Informal Sectors ; Shadow Economy ; Institutional Arrangements

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