Current Analysis on
Economics & Finance

Research Article  |  Published 10 December 2018 

Growth, Corruption, and Business Cycles
Wei-Bin Zhang*

Ritsumeikan Asia Pacific University, Oita-ken, Japan

Abstract

The purpose of this paper is to deal with interdependence between bureaucratic corruption and economic development in a dynamic general equilibrium framework. The paper generalizes Zhang’s growth model with corruption by allowing all constant parameters to be exogenously time-dependent (Zhang, 2017). The generalization makes the model robust as the original model can analyze effects of different exogenous perturbations on dynamics of the model. Zhang’s model deals with an economy with one industrial and one public sector. The population is composed of workers and officials. Supply of public service is provided by officials and affects productivity of the industrial sector. The government is the sole financial supporter of the public sector. The government’s income comes from taxes on the industrial sector. The industrial sector uses workers’ labor inputs and capital. Officials may be corrupt. They may take bribes from the private sector and households. The officials accumulate wealth. Their corrupt money can either be saved or spent on consumption. How the corrupt money used also affects paths of economic growth. We simulate the generalized model to demonstrate business cycles due to exogenous periodic shocks. Comparative dynamic analysis provides some examples of business cycles.

Keywords:
Business cycles; periodic shocks; corruption rates; income and wealth distribution; officials and workers; economic growth.