Reforming economies have typically placed little attention on the impact of illegal activities on the success of reform/stabilization packages and optimal policy design. This paper aims at developing a framework in which to assess an economy’s response to alternative stabilization/reform packages as a function of the scope of corruption activities. The framework developed herein is a basic one in which only the most fundamental questions (such as the effects of anti-corruption government policies on output and welfare) are examined. The more interesting questions of the optimal design of stabilization and economic reform policies remain to be addressed in future extensions of the model. The framework also accommodates political-economy analysis, and is able to explain why, even when able to eliminate corruption activity altogether, governments may choose not to do so. Our framework differentiates between developing and developed economies according to the income share accruing to capital, as is common in the literature. In equilibrium, the effect of anti-corruption penalties on the economy’s capital stock is greater in developing countries; in particular, we find that the elasticity of the steady state average per capita stock of capital with respect to increases in anti-corruption penalties is increasing in the income share accruing to capital. The model also shows that reductions in public good output, as a fraction of the economy’s total expenditure, lead to larger welfare decreases when in the presence of corruption.

Reforming economies have typically placed little attention on the impact of illegal activities on the success of reform/stabilization packages and optimal policy design. This paper aims at developing a framework in which to assess an economy`s response to alternative stabilization/reform packages as a function of the scope of corruption activities. The framework developed herein is a basic one in which only the most fundamental questions (such as the effects of anti-corruption government policies on output and welfare) are examined. The more interesting questions of the optimal design of stabilization and economic reform policies remain to be addressed in future extensions of the model. The framework also accommodates political-economy analysis, and is able to explain why, even when able to eliminate corruption activity altogether, governments may choose not to do so. Our framework differentiates between developing and developed economies according to the income share accruing to capital, as is common in the literature. In equilibrium, the effect of anti-corruption penalties on the economy`s capital stock is greater in developing countries; in particular, we find that the elasticity of the steady state average per capita stock of capital with respect to increases in anti-corruption penalties is increasing in the income share accruing to capital. The model also shows that reductions in public good output, as a fraction of the economy`s total expenditure, lead to larger welfare decreases when in the presence of corruption.

This textbook examines corruption through a macroeconomic lens, exploring the relationship between corruption, fiscal policy, and political economy. It merges macroeconomic growth models with elements of political economic theory to address important applied topics such as income inequality within and across countries, growth slowdowns, and fiscal crises. Revised and updated to include new research findings and recent policy discussions, the second edition contains 15 new sections and 2 new chapters on topics such as public defaults, the wage elasticity of work and the interest elasticity of saving, and the economic and fiscal impact of the 2020 pandemic. Most of the basic ideas are illustrated using a two-period model of government investment that captures the future cost of policies that favor the present. The more subtle and advanced issues are illustrated and, in some cases, quantified, using the overlapping-generations model of economic growth. The models used to illustrate the mechanisms of economic growth are extended to incorporate politics and the behavior of public official. The text concludes with a thorough discussion of policy reforms designed to address the issues discussed in earlier chapters. Intended for students familiar with intermediate-level economics, the second edition contains a technical appendix, expanded end-of-chapter questions and problems, and a complete solutions manual. The second edition also offers updated resources for instructors, including sample syllabi and over 550 multiple choice questions. Offering a unified explanation for the causes and consequences of government failure, fiscal crisis, and needed policy reforms, this text is appropriate for advanced undergraduate and beginning graduate courses in macroeconomics, political economy, and public policy.

In an environment in which growth and employment prospects in many countries remain subdued and a number of high-profile corruption cases have fueled moral outrage, and amid a growing consensus that corruption can seriously undermine a country’s ability to deliver inclusive economic growth in a number of different areas, addressing corruption globally—in both developed and developing countries—has become increasingly urgent. When corruption impairs government functions, it can adversely affect a number of important determinants of economic performance, including macrofinancial stability, investment, human capital accumulation, and total factor productivity. Moreover, when systemic corruption affects virtually all state functions, distrust of government can become so pervasive that it can lead to violence, civil strife, and conflict, with devastating social and economic implications. This Staff Discussion Note focuses on corruption that arises from the abuse of public office for private gain, whether it manifests itself transactionally (for example, a bribe) or through powerful networks between business and government that effectively result in the privatization of public policy. While designing and implementing an anticorruption strategy requires change on many different levels, the IMF's experience in assisting member countries suggests that several elements need to be given priority: transparency, rule of law, and economic reform policies designed to eliminate excessive regulation. Perhaps most important, however, addressing corruption requires building effective institutions, with the clear objective of developing a competent civil service that takes pride in being independent of both private influence and public interference.

Seminar paper from the year 2010 in the subject Business economics - Miscellaneous, grade: 1,0, Berlin School of Economics (Global Governance), language: English, abstract: During the last decades, corruption became an important topic. About twenty years ago the issue started to gain increasing attention. Different Organization engage in the fight against corruption. This is a remarkable change compared to the situation before the 1990s. Back then, most people did not see it as a pressing problem. Actually, it was more seen as an integral part of doing business. Most European countries allowed for tax deductibility of bribes. Even the World Bank, not constricted by such national concerns, was avoiding the topic. The changed perception of corruption has manifold reasons. Foremost, the geopolitical situation changed remarkably. During the cold war, governments, despite their corruptness, were supported to make sure they were not joining the communist bloc. After the end of this ideological competition, the imperative to tolerate and not to address issues like corruption and abuse of political power ceased to exist. Last, but not less important, the USA, not constraint by geopolitical considerations, had economic interest to put the topic on the agenda. While for US-companies bribing abroad was forbidden, most other developed countries used graft to initiate business abroad. Therefore, the US had a special interest to push for anti-corruption laws to level the playing field for its companies. From a western normative and moral point of view this fight against corruption on the international level seems to be a desirable development. However, if those were the only reasons for this crusade, it could be misperceived as another example of the imposition of rules from the Global North on the Global South. Then again, if corruption has negative impacts, other than moral concerns, it would legitimize this movement. Prevailing corruption might influence the development and economic performance of a country. In today`s perception development and economic performance includes a variety of indicators, which improve people`s quality of life. Therefore, after having narrowed the definition of corruption as it is understood within this paper, the correlation between corruption and some of those indicators will be examined. After this basic assessment, the relationship between economic growth, as one of the indicators for development, and corruption shall be illuminated closer. The question, whether there is a causal relationship and what the channels of this connection are shall be explored.