Working Paper: CEPR ID: DP2464
Authors: Georgemarios Angeletos; Tryphon Kollintzas
Abstract: The goal of this paper is to propose a simple paradigm for understanding rent seeking and corruption in the growth context. We develop an endogenous growth model where entrepreneurs, as intermediate-good producers, may engage in rent-seeking activities. The latter are defined by the following properties: (i) their internal effect is positive; (ii) their external effect is negative; and (iii) they use real resources. Our formulation may be viewed as a parable for theft and fraud; organized crime; industrial espionage; lobbying and policy influence; misgovernance, institutional inefficiency, tax evasion, etc. The economy is shown to fall into a trap of high rent seeking/corruption and low growth. Agents' perceptions about the external effects of rent seeking, and the complementarity or substitutability of intermediate inputs, are crucial. Contrary to conventional wisdom, higher returns to capital and more competition can be detrimental for welfare and growth, as they induce more rent seeking/corruption. Finally, our paradigm yields insights into the relationship of R&D, politicoeconomic equilibrium, income distribution, and growth, as well as the design of tax/growth policies in the presence of rent seeking/corruption.
Keywords: rent seeking; corruption; growth; property rights
JEL Codes: E10; H20; O10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| rent-seeking activities (D72) | negative externalities (D62) |
| increased competition (L13) | more rent-seeking (D72) |
| higher returns to capital (D29) | more rent-seeking (D72) |
| increased competition (L13) | lower growth (O40) |
| higher returns to capital (D29) | lower growth (O40) |
| rent-seeking (D72) | low growth (O40) |
| prevalence of corruption (H57) | economic stagnation (P27) |
| anti-corruption tax (H26) | mitigate negative impacts of corruption on growth (O17) |