Corruption in a Model of Growth: Political Reputation,Competition and Shocks

The article tries to incorporate ``political corruption'' (toplevel corruption) into economic growth analysis. We propose amicroeconomic framework. An agent of the public sector, who wantsto optimize his cash flow resulting from budget misappropriations,will be highly sensitive to the instability related to his office.The natural equilibrium for the politician will be to fall into a`high political instability – low growth' trap, in whichcorruption appears endemic. However, the control of corruption bysociety will be possible. We consider a model in which alternativepoliticians compete with the incumbent politician but benefit from a common political reputation. It is shown that this situation leads to ``dynamic collective reputation'', which should restrain misappropriationpractices. This theoretical framework will be useful in defining a``sustainable'' degree of political competition and inunderstanding the asymmetric effects of extrinsic shocks on thegrowth process.