Public Finance Governance and Growth

Public Finance Governance and Growth

In this paper , we incorporate the social costs associated with implementing fiscal policy into the model of growth with government expenditures due to Barro (1990).We show that implementation costs in the context of a hierarchical model where three parties involved are the social planner , tax collector and taxpayers leads to a distortion stemming from the social planner’s desire to avoid collusion between taxpayers and tax collectors .This distortion leads the social planner to reduce the level of public goods and thus the growth rate. Moreover ,the magnitude of the distortion, and thus its deleterious impact on growth is increasing in the ease with which bribery can be carried out .If indeed it is easy to bribe public official in LDC , it follows that the growth rates of such countries will be lower, ceteris paribus .

Key Words : Endogenous Growth , Bribery , Collusion Proof Equilibrium , Public Goods. JEL Classification  : 040 , 038