Can corruption favour growth via the composition of government spending?

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Sugata Ghosh ; Andros Gregoriou (2010)
  • Journal: Economics Bulletin, volume 30, issue 3, pages 2,270-2,278
  • Subject: Corruption, optimal composition of government spending, endogenous growth.
    • jel: jel:H5 | jel:E6

In an endogenous growth model with two public goods, we analytically derive the optimal composition of government spending in the presence of corruption. Although corruption results in a loss of productivity per se, an increase in corruption in the category of public spending that is harmed relatively more by corruption could have a favourable effect on growth, as it would encourage a benevolent government to divert spending towards the public good that is more productive, net of corruption.
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