Wages and unemployment in an urban African labour market

Type Journal Article - Economic Journal
Title Wages and unemployment in an urban African labour market
Volume 106
Issue 439
Publication (Day/Month/Year) 1996
Page numbers 1610-
URL http://ideas.repec.org/a/ecj/econjl/v106y1996i439p1610-26.html
Corruption in the public sector erodes tax compliance and leads to higher tax evasion. Moreover, corrupt public officials abuse their public power to extort bribes from the private agents. In both types of interaction with the public sector, the private agents are bound to face uncertainty with respect to their disposable incomes. To analyse effects of this uncertainty, a stochastic dynamic growth model with the public sector is examined. It is shown that deterministic excessive red tape and corruption deteriorate the growth potential through income redistribution and public sector inefficiencies. Most importantly, it is demonstrated that the increase in corruption via higher uncertainty exerts adverse effects on capital accumulation, thus leading to lower growth rates.

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