Premium
Corruption, tax evasion, and seigniorage in a monetary endogenous growth model
Author(s) -
Marakbi Réda,
Villieu Patrick
Publication year - 2020
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/jpet.12468
Subject(s) - seigniorage , economics , language change , monetary economics , transaction cost , welfare , endogenous growth theory , inflation (cosmology) , tax evasion , inflation tax , macroeconomics , monetary policy , microeconomics , public economics , market economy , human capital , art , physics , literature , theoretical physics
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.