Type
Working paper
Titre
Institutions and growth : a simplified theory of decentralization and corruption
Dans
Document de travail
Éditeur
Paris : OFCE
Collection
Document de travail : 2012-21
Mots clés
Fiscal federalism, Corruption, Endogenous growth, Pub- lic capital, Fiscal policy
Résumé
EN
This paper aims at giving a theoretical background to the, some- times observed, puzzling inverse correlation between the degree of de- centralization and economic growth. We provide evidence that there is some interaction between decentralization and corruption in ex- plaining growth. Within an endogenous growth model, we analyze the problem of a benevolent central government trying to determine the optimal degree of fiscal decentralization. Specifically, it can pro- duce a public good directly, but inefficiently, or it can delegate some (or all) of the production to more efficient local bureaucrats. In the latter case, however, some resources will be wasted because of corrup- tion and the costs linked to monitoring expenditures. With respect to the benchmark case, then, the possibility of corruption yields both a distorted allocation of resources (insufficient decentralization) and an overall under provision of the public good.

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