Week 14 - Lecture B - ECON 4411A Fall 2011 Development...

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ECON 4411A, Fall 2011 Development Economics Summary Notes: Week 14, Lesson 2 Corruption Costs Quote of the day: Common Sense is not so common Voltaire What are the costs of corruption? The costs of corruption are di ffi cult to calculate, partly because of the secrecy involved and also because the distortions caused are hard to measure. But some e ff ects seem to be beyond doubt. One result is lower overall investment. A 1997 study by Paolo Mauro of 67 countries covering data from 1960-85, found that if a country such as Egypt were to heighten the e ffi ciency of its administration and improve its corruption score of 4 out of 10 to the same level as Argentinas 6, (again where 0 means total corruption and 10 means none at all), the rate of investment would increase by 3% and the growth rate would increase by 0.5%. Another study in the same year, by Shang-Jin Wei, argues that a worsening of Singapores perfect score of 10 to that of Mexicos 3.25 would be the same as raising the tax rate by 21 percentage points. Another e ff ect of corruption is that it tilts public spending towards projects that make it easier to collect on bribes, at the expense of priority programmes. Hence the proliferation of “white elephant” projects. And typically, spending on defence is preferred over education. This is because it is di ffi
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