Choosing the size of the public sector under rent seeking from state coffers |
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| Authors: | Hyun Park Apostolis Philippopoulos Vanghelis Vassilatos |
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| Institution: | aDepartment of Economics, Kyunghee University, 1 Heoki-dong, Dongdaemoon-ku, Seoul, 130-701, South Korea;bDepartment of Economics, Athens University of Economics and Business, 76 Patission Street, Athens 10434, Greece;cCESifo, Munich, Germany |
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| Abstract: | This paper incorporates rent seeking from state coffers into a general equilibrium model of economic growth and endogenous policy. Self-interested individuals try to extract, for personal benefit, part of tax revenues that could be used to finance public investment. We solve for a non-cooperative Nash equilibrium in individual agents' behavior. The determinants of rent seeking in general equilibrium are identified and we consider the efficient size of public sector given the rent-seeking activity. Cross-country data from 108 rich and developing countries provide support for our predictions. |
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| Keywords: | Social conflict Fiscal policy Economic growth |
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