The Macroeconomics Of Corruption: Governance And Growth

Contents......Page 6
1: Introduction......Page 11
1.1 Corruption......Page 12
1.2 Close Cousins: Kleptocracy, Corruption, and Rent-Seeking......Page 15
1.3.2 Efficiency of Resource Use......Page 18
1.3.4 Value Future Generations......Page 19
1.4 Tax Evasion......Page 22
1.5.2 Endogenous Government Debt......Page 25
1.6 Economic Growth......Page 28
1.7 Modeling the Culture of Corruption......Page 29
1.8 The Big Three: Growth Slowdown, Wage Inequality, and Fiscal Crisis......Page 30
1.9 Policy Reforms......Page 32
1.10 Outline......Page 34
1.11 Exercises......Page 35
References......Page 38
2: Two-Period Model of Government Investment......Page 41
2.1 The Life-Cycle Model of Consumption and Saving......Page 42
2.2 Introducing the Government......Page 45
2.3 The Small-Open Economy Model......Page 48
2.4 Human Capital, Inequality, and Public Debt......Page 52
2.5 Public Debt Defaults......Page 56
2.6 Public Capital and Productivity......Page 58
2.7 Pure and Impure Public Capital......Page 59
2.8 The Allocation of Public Capital......Page 61
2.9 Fiscal Federalism......Page 63
2.10 A Note on Migration......Page 68
2.11 A Dynamic Generational Model......Page 69
2.13 Conclusion......Page 73
2.14 Exercises......Page 75
Appendix......Page 83
References......Page 86
3: Politics and Corruption in the Two-Period Model......Page 88
3.1 Fiscal Policy with Policy Makers......Page 90
3.2 The Politics of Investment Allocation......Page 92
3.3 Fiscal Federalism with Politics......Page 96
3.4 Foreign Funding and Regional Inequality......Page 101
3.5 Political Polarization......Page 103
3.6 Interest Groups and Rent Seeking......Page 109
3.7 Determinants of Corruption......Page 115
3.8 Conclusion......Page 117
3.9 Exercises......Page 118
Appendix......Page 121
References......Page 122
4: Overlapping-Generations Model of Economic Growth......Page 124
4.1 Firms, Production, and the Demand for Capital......Page 125
4.1.1 Capital and Labor Shares......Page 128
4.2 Household Saving and the Supply of Capital......Page 130
4.3 Competitive Equilibrium in a Growing Economy......Page 133
4.3.1 Transition Equation Analytics......Page 137
4.3.2 From the Capital-Labor Ratio to Worker Productivity Growth......Page 138
4.4 Steady State Growth-Technical Progress......Page 139
4.4.1 Transition Equation Analytics......Page 140
4.5 Quantitative Theory......Page 141
4.6 Beyond Private Capital: Other Sources of Growth......Page 147
4.7 Growth and Welfare......Page 149
4.8 Exercises......Page 154
References......Page 158
5.1 Introducing the Government......Page 160
5.1.1 The Fiscal Gap......Page 162
5.1.2 Government Capital and Private Production......Page 163
5.1.3 Households with Taxes and Transfers......Page 164
5.2 The Economic Effects of Fiscal Policy-Government Purchases......Page 165
5.2.1 Government Purchases-Consumption......Page 166
5.2.2 Government Purchases-Consumption and Investment......Page 167
5.3 The Economic Effects of Fiscal Policy-Intergenerational Transfers......Page 168
5.3.1 Debt Policy #1......Page 169
5.3.2 Debt Policy #2......Page 170
5.3.4 Government Pensions-Pay-As-You-Go (PAYG)......Page 171
5.4 Capital Accumulation in an Open Economy......Page 172
5.4.1 Low International Interest Rates......Page 173
5.4.2 Open Capital Markets and Growth in Developing Countries......Page 174
5.5 The Fiscal Crisis......Page 176
5.5.1 The Fundamentals......Page 178
5.5.2 The Politics......Page 179
5.6 Generational Accounting......Page 180
5.7 Fiscal Crises, Financial Crises, and Recessions......Page 182
5.8 Ten Important Results from Economic Theory......Page 183
5.9 Exercises......Page 184
Appendix......Page 190
References......Page 192
6: Politics, Corruption, and Economic Growth......Page 194
6.1 Government: Benevolent Dictator or Kleptocrat?......Page 197
6.2 Wagner´s Law and Interest Groups......Page 204
6.3 Tax Evasion......Page 210
6.4 A Benchmark Economy without Corruption-Evasion......Page 211
6.5 An Economy with Corruption and Evasion......Page 215
6.6 Conclusion......Page 223
6.7 Exercises......Page 224
References......Page 226
7: Corruption and Public Debt......Page 229
7.1 Theories of Government Debt......Page 230
7.2 Corruption and Altruism in the Two-Period Model......Page 232
7.3 A Benchmark Economy without Corruption and Evasion......Page 236
7.4 An Economy with Corruption and Evasion......Page 241
7.5 Empirical Evidence......Page 249
7.7 Exercises......Page 253
References......Page 255
8: The Political Economy of Fiscal Reforms......Page 257
8.1.1 Aging and Rising Health Care Costs......Page 258
8.1.2 Slowing Long-Run Economic Growth......Page 261
8.1.3 Rising Wage Inequality......Page 267
8.1.4 Policies Addressing the Economic Fundamentals......Page 270
8.2 Politics......Page 281
8.2.1 Corruption, Tax Evasion, and Public Debt......Page 282
8.2.3 Transparency......Page 283
8.2.4 Budget Process and Rules......Page 287
8.2.5 Polarization......Page 288
8.3.1 Needed: Accountants without Borders......Page 289
8.3.3 Multi-lateral Aid......Page 290
8.3.5 Deal with Corruption First......Page 291
8.4 Exercises......Page 292
References......Page 294
9.1.1 Why Does Sustained Modern Economic Growth Fail to Take-Off?......Page 299
9.1.3 Why Does Long-Run Growth Eventually Slow?......Page 300
9.1.4 Why Is Income Inequality on the Rise?......Page 301
9.1.5 Why Have Fiscal Crises Become Commonplace, Threatening the Prosperity of most Developed Countries?......Page 302
9.2.1 The Science......Page 303
9.2.2 Economic Effects......Page 304
9.2.3 The Policy Response......Page 305
9.2.4 The Climate Crisis and the Fiscal Crisis......Page 306
9.3 The Big Four?-Robots......Page 307
9.3.1 Smart Machines and the Future of Work......Page 309
9.3.2 A Model with Robots......Page 310
9.3.3 Comments......Page 311
9.4 The Big Four?-Pandemics......Page 313
9.4.1 Short-Run Economic Effects......Page 314
9.4.2 Long-Run Economic Effects......Page 316
9.4.3 New Generational Tensions......Page 317
9.5 Is Government Failure Inevitable?......Page 318
9.6 Historical Lessons?......Page 320
9.6.1 Is the United States, Rome?......Page 321
9.6.2 Other Empires......Page 325
9.7 Suggestions for Further Reading and Study......Page 329
References......Page 330
A.1 Two Useful Functions......Page 333
A.2 Optimization......Page 336
A.3 Nonnegativity Constraints and Corner Solutions......Page 340
A.4 Total Differentials and Linear Approximations......Page 342
A.5 L´Hospital´s Rule......Page 343
A.6 Expected Utility......Page 344
A.8 Quadratic Equations......Page 346
A.9 Infinite Series......Page 347
Index......Page 349