Redistribution to Rent Seekers, Foreign Aid and Economic Growth
Abstract
This paper analyzes the consequences of redistribution of public funds to rent seekers. Therefore, it introduces redistribution to rent seeking agents into Barro’s (1990) endogenous growth model with a productive public sector. It shows that the growth rate decreases in the share of the public funds that is redistributed. The public sector’s relative sizes that
maximize growth and welfare become also smaller in presence of redistribution. Further, if foreign aid is added to the model, the relationship between aid and growth turns out to be inverted-U shaped under reasonable policy assumptions, which is consistent with the finding of an Aid Laffer Curve by some recent empirical studies.
maximize growth and welfare become also smaller in presence of redistribution. Further, if foreign aid is added to the model, the relationship between aid and growth turns out to be inverted-U shaped under reasonable policy assumptions, which is consistent with the finding of an Aid Laffer Curve by some recent empirical studies.
Date Issued
2004-04
Publication Type
Working Paper
Language(s)
en
Additional Credits
Publisher
Department of Economics
Access(Rights)
Unknown