The adverse economic effects of corruption have been borne out by a number of recent studies, using cross-sectional analysis and corruption indices. These adverse effects are especially severe on private investment and economic growth. Mauro (1998) reports regression analysis which shows that a country that improves its standing on the corruption index from 6 to 8 (0 being the most corrupt, 10 the least) will experience a 4 percentage point increase in its investment rate and a 0.5 percentage point increase in its annual per capita GDP growth rate. Tanzi (1998) provides a useful summary of the adverse effects of corruption quantified in recent studies. These include: •Reducing investment and hence growth, by increasing costs and uncertainty; •Reducing spending on health and education, because these expenditures do not lend themselves easily to corrupt practices on the part of those who control the budget strings; •Reducing spending on operations and maintenance for reasons similar to the point above; •Increasing public investment because public projects are easier to manipulate by public officials and private bidders; •Reducing the productivity of public investment and infrastructure; •Reducing tax revenues due to corrupt tax and customs administration; and •Reducing direct foreign investment because corruption acts as a tax—the less predictable the level of corruption (the higher its variance), the greater its impact on foreign investment. A higher variance makes corruption act like an unpredictable and random tax.
Posted on: Sat, 21 Sep 2013 13:53:51 +0000
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