Corruption in Public Investment
de la Croix, David
Corruption in Public Investment - 2007.
85
In this paper, we analyze one channel through which corruption hampers growth: public investment can be distorted in favour of specific types of spending for which rent-seeking is easier and better concealed. To study this distortion, we propose an optimal growth model where a planner chooses the composition of public spending subject to an incentive constraint reflecting households’ choice between productive activity and rent-seeking. We test the implications of the model on a panel of countries estimating a system of equations with instrumental variables. Countries with a failing legal system have higher levels of corruption, spend relatively more in physical capital than in education and health, and they grow slower, in particular if the political power is highly concentrated. Classification JEL: O41, H50, D73.
Corruption in Public Investment - 2007.
85
In this paper, we analyze one channel through which corruption hampers growth: public investment can be distorted in favour of specific types of spending for which rent-seeking is easier and better concealed. To study this distortion, we propose an optimal growth model where a planner chooses the composition of public spending subject to an incentive constraint reflecting households’ choice between productive activity and rent-seeking. We test the implications of the model on a panel of countries estimating a system of equations with instrumental variables. Countries with a failing legal system have higher levels of corruption, spend relatively more in physical capital than in education and health, and they grow slower, in particular if the political power is highly concentrated. Classification JEL: O41, H50, D73.
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