Corruption, Public Investment, and Growth

23 Pages Posted: 15 Feb 2006

See all articles by Vito Tanzi

Vito Tanzi

International Monetary Fund (IMF); National Bureau of Economic Research (NBER)

Hamid R. Davoodi

International Monetary Fund (IMF) - Fiscal Affairs Department

Date Written: October 1997

Abstract

Corruption, particularly political or "grand" corruption, distorts the entire decision-making process connected with public investment projects. The degree of distortions is higher with weaker auditing institutions. The evidence presented shows that higher corruption is associated with (i) higher public investment; (ii) lower government revenues; (iii) lower expenditures on operations and maintenance; and (iv) lower quality of public infrastructure. The evidence also shows that corruption increases public investment while reducing its productivity. These are five channels through which corruption lowers growth. An implication is that economists should be more restrained in their praise of high public sector investment, especially in countries with high corruption.

Keywords: Corruption, public investment, growth, productivity

JEL Classification: D73, H5, O40, O57

Suggested Citation

Tanzi, Vito and Davoodi, Hamid R., Corruption, Public Investment, and Growth (October 1997). Available at SSRN: https://ssrn.com/abstract=882701 or http://dx.doi.org/10.2139/ssrn.882701

Vito Tanzi (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Tax Policy Division Fiscal Affairs Department
Washington, DC 20431
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Hamid R. Davoodi

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States

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