No abstract

Economic development and bureaucratic corruption are determined jointly in a dynamic general equilibrium model of growth, bribery and tax evasion. Corruption arises from the incentives of public and private agents to conspire in the concealment of information from the government. These incentives depend on aggregate economic activity which, in turn, depends on the incidence of corruption. The model produces multiple development regimes, transition between which may or may not occur. In accordance with recent empirical evidence, the relationship between corruption and development is predicted to be negative. r

This paper presents an analysis of the joint determination of real and financial development. Privately informed designers obtain external finance for their research projects through incentive-compatible loan contracts. Contracts are enforced through costly monitoring activity which lenders may either undertake themselves, or delegate to a financial intermediary. The analysis establishes a positive, two-way causal relationship between growth and financial development. In addition, using a multi-country version of the model, it is shown how both financial and trade liberalization can accelerate the development of intermediation; only trade liberalization has a direct positive effect on growth, however.

a b s t r a c tWe study the relationship between the underground economy and financial development in a model of tax evasion and bank intermediation. Agents with heterogeneous skills seek loans in order to undertake risky investment projects. Asymmetric information between borrowers and lenders implies a menu of loan contracts that induce self-selection in a separating equilibrium. Faced with these contracts, agents choose how much of their income to declare by trading off their incentives to offer collateral against their disincentives to comply with tax obligations. The key implication of the analysis is that the marginal net benefit of income disclosure increases with the level of financial development. Thus, in accordance with empirical observation, we establish the result that the lower is the stage of such development, the higher is the incidence of tax evasion and the greater is the size of the underground economy.Published by Elsevier B.V.

This paper presents an analysis of the long-run implications of short-term stabilisation policy. The analysis is based on a simple, stochastic model of an imperfectly competitive economy with nominal rigidities and an endogenous technology. By virtue of the latter, temporary shocks have permanent effects such that the cyclical and secular properties of output are related. In particular, smoother cyclical¯uctuations may be associated with¯atter secular trends, implying a trade-off between short-term stabilisation and long-term growth.