Corruption, tax evasion, and seigniorage in a monetary endogenous growth model

Abstract

In this paper, we reassess the link between corruption, economic growth, and inflation. To this end, we build an endogenous growth model with transaction costs in which a corruption sector allows households evading from taxation. Several results emerge. First, seigniorage acts as a tax on corruption and therefore allows reducing the aggregate level of corruption in equilibrium. Second, corruption increases both the growth-maximizing and the welfare-maximizing seigniorage rate. Third, corruption can be identified as an autonomous channel of nonsuperneutrality of money. Fourth, our model exhibits a U-shaped relation between corruption and inflation, contrasting with previous literature. On this last point, an empirical investigation based on a structural threshold regression framework confirms the predictions of the theoretical model. 1 | INTRODUCTION In many countries, corruption 1 within the public administration remains an important cause of poor macroeconomic performance. In particular, corruption is often viewed as detrimental for eco

Impact of External Debt and Financial Integrity Management on Economic Growth in Developing Countries: Evidence from the MMQR Approach

“…Bethencourt and Kunze (2020) and argue that illicit financial flows negatively impact a country's development due to huge fund loss from the economy. According to several empirical studies, developing countries have a high rate of illicit financial flows, money laundering, tax evasion and trade misinvoicing, which are the core components of financial integrity management (Marakbi & Villieu, 2020). Studies also report that poor management of financial integrity issues is sensitive to the use of public funds, including external debt.…”

“…Another group of studies argue that the level of financial integrity management is conditional on the effectiveness of public debt for an economy (Combes et al, 2019). Financial integrity provides knowledge and standard of the transparency and legitimacy of financial transactions nationally and internationally, considering illicit financial flows, trade misinvoicing, tax evasion, illicit trades and money laundering (Marakbi & Villieu, 2020;. According to several studies, financial integrity management (FI) management is one of the factors strongly linked to both effective and ineffective public fund management (Dutta, 2020;Osadume & Imide, 2022).…”

Growth maximizing government size, social capital, and corruption

“…As previously discussed, the capital factor is to be understood in a broad sense as in Barro (1990) who, using the Cobb–Douglas production function in his Equation (10), sets a value for the elasticity of capital which would be equivalent to in our specification (see caption of Figure 1 on p. S110). Similarly, in their benchmark calibration, Marakbi and Villieu (2020) set .…”

Introduction to the thematic issue on “Regulation in health, environmental and innovation sectors”

“…The following two papers, written by Avcioglu and Karabay (2020) and Marakbi and Villieu (2020) consider different issues in macroeconomic settings.…”

“…The paper by Marakbi and Villieu (2020) reassesses the link between corruption, economic growth, and inflation, as well as the role of seigniorage as a policy tool in this context. To this end, the authors propose a two‐sector endogenous growth model with transaction costs and productive public spending in the tradition of Barro (1990), in which a corruption sector allows households to evade taxation.…”