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Redistribution to Rent Seekers, Foreign Aid and Economic Growth

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  • Roland Hodler

Abstract

This paper analyzes the consequences of redistribution of public funds to rent seekers. Therefore, it introduces redistribution to rent seeking agents into Barro's (1990) endogenous growth model with a productive public sector. It shows that the growth rate decreases in the share of the public funds that is redistributed. The public sector's relative sizes that maximize growth and welfare become also smaller in presence of redistribution. Further, if foreign aid is added to the model, the relationship between aid and growth turns out to be inverted-U shaped under reasonable policy assumptions, which is consistent with the finding of an Aid Laffer Curve by some recent empirical studies

Suggested Citation

  • Roland Hodler, 2004. "Redistribution to Rent Seekers, Foreign Aid and Economic Growth," Diskussionsschriften dp0406, Universitaet Bern, Departement Volkswirtschaft.
    • Handle: RePEc:ube:dpvwib:dp0406
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    Cited by:

    1. Michael Clemens & Steven Radelet & Rikhil Bhavnani, 2004. "Counting Chickens When They Hatch: The Short-term Effect of Aid on Growth," Working Papers 44, Center for Global Development.

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    More about this item

    Keywords

    Rent seeking; Growth; Foreign Aid; Fiscal Policy;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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