Corruption accounting and growth: towards a new methodology

ARIEL COREMBERG Y BEATRIZ NOFAL; MARTIN GRANDES

Paris

Conferencia; Conferencia OECD; 2019

OECD Development Centre Unidad América Latina y el Caribe

In this paper, we demonstrate empirically that corruption causes significant and sizeable macroeconomic costs in terms of economic activity and economic growth and lay the foundations of a new methodology to account corruption losses using data from the National Accounts and judiciary investigations within the framework of the OECD Non-Observed Economy instead of subjetive indicators as in the earlier literature. These costs imply that the standard microeconomic and political economy theories on the causes and consequences of corruption, especially in less developed economies with weak institutions, low total factor productivity and unstable macroeconomic fundamentals, are not able to explain the full magnitude and outreach of the corruption phenomenon. After modelling corruption as a tax in an endogenous growth model, we estimate the baseline (bribes paid to public officials) macroeconomic cost of corruption using Argentina 2004-2015 as a case study. We find it stands at a minimum accumulated rate of 8 percent of GDP or 0,8 percent yearly. These findings provide a corruption cost floor and are consistent with earlier research on world corruption losses estimated at 5 percent by the World Economic Forum and with Brazil and Peru?s corruption losses which have been estimated at between a yearly rate of 1.3 and 4 percent of GDP, and 2 percent respectively.