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Rent-seeking competition from state coffers in a calibrated DSGE model of the euro area

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  • Konstantinos Angelopoulos
  • Apostolis Philippopoulos
  • Vanghelis Vassilatos

Abstract

We incorporate an uncoordinated redistributive struggle for extra fiscal privileges into an otherwise standard dynamic stochastic general equilibrium model. The main aim is to get model-consistent quantitative evidence of the extent of rent seeking. Our work is motivated by the common belief that interest groups compete with each other for privileged transfers, subsidies and tax treatments at the expense of the general public interest. The model is calibrated to the euro area as a whole, and to individual euro member-countries, over the period 1980-2003. We find that an important proportion of tax revenue is appropriated by rent seekers and that the introduction of rent seeking moves the model in the right direction vis-à-vis the data

Suggested Citation

  • Konstantinos Angelopoulos & Apostolis Philippopoulos & Vanghelis Vassilatos, 2007. "Rent-seeking competition from state coffers in a calibrated DSGE model of the euro area," Working Papers 2007_29, Business School - Economics, University of Glasgow.
    • Handle: RePEc:gla:glaewp:2007_29
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    3. Eggert, Wolfgang & Sørensen, Peter Birch, 2008. "The effects of tax competition when politicians create rents to buy political support," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1142-1163, June.
    4. Konstantinos Angelopoulos & Apostolis Philippopoulos & Vanghelis Vassilatos, 2006. "Rent-Seeking Competition from State Coffers: A Calibrated DSGE Model of the Euro Area," CESifo Working Paper Series 1644, CESifo.
    5. J. Stephen Ferris, 2010. "Fiscal Policy from a Public Choice Perspective," Carleton Economic Papers 10-10, Carleton University, Department of Economics.
    6. Giovanni Di Bartolomeo & Patrizio Tirelli & Nicola Acocella, 2015. "The Comeback of Inflation as an Optimal Public Finance Tool," International Journal of Central Banking, International Journal of Central Banking, vol. 11(1), pages 43-70, January.

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    More about this item

    Keywords

    Fiscal policy; real business cycles; rent seeking.;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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