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Corruption in the public sector is manifested both in collusive and noncollusiveforms. Collusive corruption erodes tax compliance and leads to higher tax evasion.Noncollusive corruption stems from abuse of the public position by corrupt publicofficials to extort bribes from the private agents, thus, reduces their income. Importantly,in both types of interaction with the public sector the private agents arebound to face uncertainty with respect to their disposable incomes, as neither bribespaid nor gains from tax evasion are deterministic. To analyze effects of corruptionby accounting for the uncertainty caused by it, a stochastic dynamic growth modelis considered. The model also incorporates possibility of nonlinear impact of corruptionon production, which implies that corruption deteriorates the growth potentialby preventing producers to enter high productive sectors. Most importantly, it isdemonstrated that the rise of corruption, by increasing uncertainty, exerts adverseeffects on capital accumulation, thus leads to lower growth rates. Hence, this paperresolves the theoretical ambiguity with regards to the overall growth effect ofcorruption obtained in previous studies.

Item Type: MPRA Paper -

Original Title: Nonlinear effect of corruption, uncertainty, and growth-

English Title: Nonlinear effect of corruption, uncertainty, and growth-

Language: English-

Keywords: Corruption, uncertainty, growth-

Subjects: D - Microeconomics > D9 - Intertemporal Choice > D91 - Intertemporal Household Choice ; Life Cycle Models and SavingE - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E26 - Informal Economy ; Underground EconomyH - Public Economics > H2 - Taxation, Subsidies, and Revenue > H26 - Tax Evasion and Avoidance-

Autor: Ratbek, Ratbek


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