Governance, productivity and economic development

TL;DR

This paper models how transfer policies, R&D, and corruption influence economic development within a general equilibrium framework with heterogeneous agents and government actions.

Contribution

It introduces a tractable analytical model that incorporates corruption and policy impacts on economic growth and redistribution strategies.

Findings

Corruption siphons off tax revenues, reducing public investment.

Redistribution and innovation policies significantly affect economic development.

The model establishes the existence of a political-economic equilibrium.

Abstract

This paper explores the interplay between transfer policies, R\&D, corruption, and economic development using a general equilibrium model with heterogeneous agents and a government. The government collects taxes, redistributes fiscal revenues, and undertakes public investment (in R\&D, infrastructure, etc.). Corruption is modeled as a fraction of tax revenues that is siphoned off and removed from the economy. We first establish the existence of a political-economic equilibrium. Then, using an analytically tractable framework with two private agents, we examine the effects of corruption and evaluate the impact of various policies, including redistribution and innovation-led strategies.