Skip to main content
main-content

Über dieses Buch

This textbook examines corruption through a macroeconomic lens, exploring the relationship between corruption, fiscal policy, and political economy. It merges macroeconomic growth models with elements of political economic theory to address important applied topics such as income inequality within and across countries, growth slowdowns, and fiscal crises. Revised and updated to include new research findings and recent policy discussions, the second edition contains 15 new sections and 2 new chapters on topics such as public defaults, the wage elasticity of work and the interest elasticity of saving, and the economic and fiscal impact of the 2020 pandemic.

Most of the basic ideas are illustrated using a two-period model of government investment that captures the future cost of policies that favor the present. The more subtle and advanced issues are illustrated and, in some cases, quantified, using the overlapping-generations model of economic growth. The models used to illustrate the mechanisms of economic growth are extended to incorporate politics and the behavior of public official. The text concludes with a thorough discussion of policy reforms designed to address the issues discussed in earlier chapters.

Intended for students familiar with intermediate-level economics, the second edition contains a technical appendix, expanded end-of-chapter questions and problems, and a complete solutions manual. The second edition also offers updated resources for instructors, including sample syllabi and over 550 multiple choice questions. Offering a unified explanation for the causes and consequences of government failure, fiscal crisis, and needed policy reforms, this text is appropriate for advanced undergraduate and beginning graduate courses in macroeconomics, political economy, and public policy.

Inhaltsverzeichnis

Frontmatter

Chapter 1. Introduction

Abstract
It is clear that the government is needed to lay the foundation for economic development. Development cannot occur without a public infrastructure that establishes and facilitates markets via the provision of national defense, a transportation system, legal protection of private property and marketable ideas, education and basic research, and a stable currency. In the early stages of development, governments also establish the first banks and corporations, often in partnership with private owners. The fundamental issue of public sector economics is how to constrain the government to provide these goods and services in a way that benefits most citizens rather than the private interests of politicians and the relatively small groups of their most important supporters.
Maksym Ivanyna, Alex Mourmouras, Peter Rangazas

Chapter 2. Two-Period Model of Government Investment Government investments

Abstract
This chapter presents the simplest model for studying investment. The model has two periods. The current period, denoted as period 1, and the future period, denoted as period 2. Investments are chosen and financed in period 1 and the return to investment is realized in period 2. The model has been used frequently in international macroeconomics, both as an introductory pedagogical device (e.g. Obstfeld and Rogoff 1996) and as a tool for analyzing issues on the research frontier (e.g. D’Erasmo and Mendoza 2015). Here, we use the model to examine government investment decisions. The goal of the chapter is to identify how the level and the allocation of government investment should be determined when using purely economic considerations that are in the national interest. The analysis provides the benchmark for comparison to the situation with self-interest, election politics, rent seeking, and corruption, as introduced in Chap. 3.
Maksym Ivanyna, Alex Mourmouras, Peter Rangazas

Chapter 3. Politics and Corruption in the Two-Period Model

Abstract
Chapter 2 tells us that benevolent national policy makers, motivated to maximize aggregate welfare, make efficient investments in public capital and favor poor regions in the allocation of that capital in order to increase economic growth and equalize regional income. In contrast to this optimistic view of government policy, the evidence from Chap. 1 indicates there are autocratic regimes that are far from benevolent. Many countries have failed to experience sustained modern growth and their living standards have diverged from, rather than converged to, those of rich countries. Empirical evidence indicates that income convergence across regions within a given country was characteristic of the twentieth century (Barro and Sala-i-Martin 1991, 1992). However, the rate of convergence was quite slow over the first 75 years of the century. Over the last 40 years, incomes have ceased to converge and may have actually diverged. (Arcalean et al. 2012; Ganong and Shoag 2013; Sacchi and Salotti 2011). The situation has been complicated by a slowdown in aggregate productivity growth that has reduced private and government resources that could be used to deal with persistent inequality.
Maksym Ivanyna, Alex Mourmouras, Peter Rangazas

Chapter 4. Overlapping-Generations Model of Economic Growth

Abstract
This chapter introduces the one-sector neoclassical growth model with overlapping generations. The primary focus of the chapter is growth via private physical capital accumulation. We think of private physical capital as manmade durable inputs to the production process. For our purposes, private capital can be primarily thought of as plant and equipment that is produced in one period and then used in production in the following period. To model production, we introduce firms, economic institutions that combine physical capital and labor to produce goods and services. In Chap. 5, we re-introduce the public capital that was the focus of Chaps. 2 and 3 and study the interaction between public and private capital accumulation, along with other effects of fiscal policy on economic growth.
Maksym Ivanyna, Alex Mourmouras, Peter Rangazas

Chapter 5. Fiscal Policy in the Overlapping-Generations ModelOverlapping-generations model

Abstract
In this chapter we introduce several different features of fiscal policy into the overlapping-generations model, including taxes and transfers, government purchases of both consumption services and public capital, and government borrowing. A major objective in this chapter is to examine how fiscal policy affects private capital formation and economic growth. As suggested in Chap. 4, introducing public capital investment, first encountered in Chap. 2, is essential to build a more complete and accurate explanation of modern growth. The chapter also includes a discussion of the causes and the consequences of the fiscal crisis facing developed countries around the world. As discussed in Chaps. 2 and 3, both economic fundamentals and politics have contributed to the emergence of the fiscal crisis. The fiscal policy additions to the growth model of Chap. 4 provide the needed theoretical foundation to understand the Big Three economic problems of the 21st century that were introduced in Chap. 1 and that will be analyzed further in Chap. 8.
Maksym Ivanyna, Alex Mourmouras, Peter Rangazas

Chapter 6. Politics, Corruption, and Economic Growth

Abstract
Chapters 4 and 5 extended the two-period investment model to form a complete growth model. Here, we add endogenous theories of fiscal policy with selfish political motives, in the spirit of Chap. 3, to the growth model. First, we examine the consequence of a powerful kleptocracy for the economic growth of a developing country. Next, we consider a less drastic scenario, where there is interest group pressure on the government of a developing country that may bias policies against economic development. In Chap. 3, we saw how a proliferation of interest groups causes a rise in government transfers as democracies mature in the later stages of development. An important interest group during the early stages of development is comprised of large landowners. In this chapter we focus on the interaction between the political influence of landowners, the structural transformation, and the tax base that affects the growth in governments of developing countries. Finally, we examine the interplay between tax evasion and corruption by public officials and its consequences for private and public capital accumulation.
Maksym Ivanyna, Alex Mourmouras, Peter Rangazas

Chapter 7. Corruption and Public Debt

Abstract
Chapter 5 shows how particular economic fundamentals and interest group politics are driving the formation of large fiscal gaps. Here, we stress that corruption is also an important determinant of the fiscal gap in many developed countries. We first introduce corruption and debt in the two-period model of government investment, using the generational interpretation. The model highlights the connection between corruption and government debt when the altruism toward future generations is sufficiently low. Next, we move to a more complete analysis using the overlapping-generations growth model. This section extends the quantitative theory from Chap. 6 that studied how the presence of corruption and tax evasion affects the formation of a country’s fiscal policy, by including public debt as a fiscal instrument.
Maksym Ivanyna, Alex Mourmouras, Peter Rangazas

Chapter 8. The Political EconomyPolitical economy of Fiscal Reforms

Abstract
In this chapter we discuss various proposals to reform government policy and process. The motivation for the reforms is resolving the fiscal crisis discussed in previous chapters. The fiscal crisis is the major issue facing the governments of developed countries during the twenty-first century. The crisis is connected with the important economic phenomena of the century, including aging of the population, slowing of long-run economic growth, and rising wage inequality. Our discussion is focused primarily on the U.S., but most of the discussion applies to the OECD countries generally.
Maksym Ivanyna, Alex Mourmouras, Peter Rangazas

Chapter 9. Conclusion

Abstract
We have offered an introduction to the political economy of fiscal policy in a macroeconomic context where the main focus is long-run economic growth and prosperity. The models developed were applied to important real-world issues such as economic development, income inequality, and fiscal crises. This final chapter summarizes the main results of the analysis by discussing how fiscal policy contributes to answering the five overriding questions provided in the introduction. We also suggest that the problem of good governance has always been with us, driven throughout history by a common set of human characteristics. The challenge of enduring success is to first recognize these human failings and then to create institutions that provide the needed checks on behavior.
Maksym Ivanyna, Alex Mourmouras, Peter Rangazas

Backmatter

Weitere Informationen

Premium Partner

    Bildnachweise