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Advisor(s)
Abstract(s)
This paper analyses the steady-state effect of business corruption penalties on economic growth,
corruption and welfare. To that end, the baseline horizontal R&D growth model is extended to
include corruption, which is generated in intermediate goods production. Taxation on corruption
depresses profits in production but also wages, leading to labor being reallocated from production to R&D, and, therefore, to a higher economic growth rate. Moreover, it also reduces corruption and increases welfare if preferences towards a corruption-free environment are strong
enough. The results are in line with the data observed for 15 EU countries.
Description
Keywords
Horizontal growth model Corruption Consumer’s welfare