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The effect of corruption on capital accumulation

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Abstract

This paper examines the effect of corruption in infrastructure development as well as in capital and labor markets, on capital accumulation and output in an overlapping generations model. Corruption affects income redistribution, government expenditures on infrastructure, firms’ incentive to invest, and workers’ incentive to supply labor. An increase in corruption in infrastructure development decreases capital accumulation and output if the decrease in the savings of ordinary workers is sufficiently large. An increase in corruption in the capital market decreases capital accumulation and output. An increase in corruption in labor market decreases capital accumulation and output when labor supply is completely inelastic. Simulation results based on plausible parameter values indicate that an increase in corruption in the labor market will also reduce labor supply, capital accumulation and output.

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Authors and Affiliations

  1. Department of Economics, CBA 512, University of Nebraska, Omaha, NE, 68182, USA

    Shuanglin Lin

  2. School of Economics, Peking University, Beijing, China

    Shuanglin Lin

  3. University of Cambridge, Sidgwick Avenue, Cambridge, CB3 9DA, UK

    Wei Zhang

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  1. Shuanglin Lin
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  2. Wei Zhang
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Correspondence to Shuanglin Lin.

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Lin, S., Zhang, W. The effect of corruption on capital accumulation. J Econ 97, 67–93 (2009). https://doi.org/10.1007/s00712-009-0062-2

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