Corruption in public finances, and the effects on inflation, taxation, and growth

In this paper, we study the effects of bureaucratic corruption on inflation, taxation, and growth. Here corruption takes three forms: (i) it reduces the tax revenues that are raised from households, (ii) it inflates the volume of government spending, and (iii) it reduces the productivity of ‘effective’ government expenditure. Our policy experiments reveal that the effect of (i) is to increase both seigniorage and the income tax rate, and to decrease the steady-state growth rate. The effect of (ii) is to increase seigniorage, which leads to lower growth, although the effect on the income tax rate is ambiguous. The effect of (iii) is to increase seigniorage and decrease the income tax rate. The former yields a lower growth rate, while the latter has an ambiguous effect on growth. These findings, from our unified framework involving corruption in public finances, could rationalise the apparently conflicting evidence on the impact of corruption on economic growth provided in the literature, highlighting the presence of conditional corruption effects

A theory of organized crime, corruption and economic growth

We develop a framework for studying the interactions between organized crime and corruption, together with the individual and combined effects of these phenomena on economic growth. Criminal organizations co-exist with law-abiding productive agents and potentially corrupt law enforcers. The crime syndicate obstructs the economic activities of agents through extortion, and may pay bribes to law enforcers in return for their compliance in this. We show how organized crime has a negative effect on growth, and how this effect may be either enhanced or mitigated in the presence of corruption. The outcome depends critically on a trade-off generated when corruption exists, that between a lower supply of crimes and the probability these crimes are more likely to be successful

Corruption, Fiscal Policy, and Growth: A Unified Approach

AbstractWe study the effects of bureaucratic corruption on fiscal policy and economic growth, where corruption (i) reduces the tax revenue raised from households, (ii) inflates the volume of government spending, and (iii) reduces the productivity of “effective” government expenditure. We distinguish between the policies pursued by (a) a non-optimizing, and (b) an optimizing government. For both cases, corruption leads to higher income tax and inflation rates and a lower level of government spending, thus hindering growth. In the circumstances, an activist government could allocate its resources in attempting to reduce the type of corruption that harms growth the most. Finally, the findings from our unified framework could rationalize the sometimes conflicting empirical evidence on the impact of corruption on growth in the literature.</jats:p

Aid, Budgetary Policies, and the Macroeconomy: Growth, Inflation, and Welfare

This paper examines the macroeconomic effects of foreign aid transfers in a small open recipient economy. The focus, however, is not on the impact of foreign aid per se but rather on aid’s influence conditional upon the different budgetary financing policies under the discretion of the recipient government. We compare the effects of an aid transfer tied to investment in a public good from a pure aid transfer, under income-tax and/or inflation-tax financing of government expenditures. The effects of each form of aid under each type of public financing are examined with respect to the economic growth rate, the rate of inflation, and the percentage change in welfare of the recipient economy. The economy is analyzed numerically and specific policy recommendations are provided for individual recipient countries.

Aid effectiveness: the role of the local elite

We study the importance of the local elite as a determinant of the effectiveness of foreign aid in developing countries. The local elite serves as an intermediary between aid donors and aid recipients through its control of the government and major firms. The likelihood of misusing aid is large if the elite is characterized by extensive economic and political power and little concern for social groups besides itself. To determine which countries have this type of elite we use a historically determined variable: the percentage of European settlers in total population in colonial times. We provide strong empirical evidence that the level of European settlement in colonial times is negatively related to the effectiveness of foreign aid as measured in a growth-regression framework. Our results are robust to the inclusion of a wide set of alternative explanatory factors advanced in the aid effectiveness literature

The Impact of Foreign Aid on Economic Growth: Volatility of Disbursements and Distribution of Receipts

This paper is concerned with the effects of aid transfers and their degree of volatility on economic growth. We develop a theoretical framework that distinguishes the allocation of foreign aid between productive and nonproductive uses. On the one hand, devoting aid inflows into productive public spending promotes growth while the related volatility has a damaging effect. On the other hand, the non-productive use of aid transfers has an adverse effect on growth while their volatility is growth-enhancing. The theoretical implications are supported by an empirical specification, formulated on similar grounds, for a panel of 74 aid-recipient countries over the time period from 1972 to 1998. The empirical results are found to be robust in a variety of sensitivity tests.

Corruption Clubs: The Allocation of Public Expenditure and Economic Growth

This paper studies the optimal allocation of government spending between health, education, and infrastructure in an endogenous growth framework. In the model, infrastructure a?ects not only the production of goods but also the supply of health and education services. The production of health (education) services depends also on the stock of educated labor (health spending). Transitional dynamics associated with budget-neutral shifts in the composition of expenditure are analyzed, and growth- and welfare-maximizing allocation rules are derived and compared. The discussion highlights the key role played by the parameters that characterize the health and education technologies.

Measurement of blood phosphorus: A quick and inexpensive method for detection of the existence of cancer in the body. Too good to be true, or forgotten knowledge of the past?

The possible elevation of phosphorous (P) in cancer patients blood serum has been reported in the past. This however seems to have passed unnoticed. One hundred individuals, divided into two groups of fifty each, i.e. cancer patients (group A) and healthy individuals (group B), were included in this retrospective study. The incidence of cancer by site in group A was 24% head and neck, 50% non-small cell lung cancer (SCLC) and 26% cervical cancer. In all cancer patients in group A the serum P was over the normal values, in contrast with the normal values of P measured in group B. The mean value of serum P in group A and B were 7.80 (±2.24) and 3.38 (±0.58), respectively (P&lt;. 0.001, Mann Whitney test). Increased amount of phosphorus in the blood, when other causes justifying the increase were excluded, should be considered as indicative for the existence of unidentified cancerous lesions. © 2013 Elsevier Ltd