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

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  • Réda Marakbi
  • Patrick Villieu

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.

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  • Réda Marakbi & Patrick Villieu, 2020. "Corruption, tax evasion, and seigniorage in a monetary endogenous growth model," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(6), pages 2019-2050, December.
    • Handle: RePEc:bla:jpbect:v:22:y:2020:i:6:p:2019-2050
    DOI: 10.1111/jpet.12468
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