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Mr. Paolo Mauro

noncooperatively will experience greater corruption, lower political stability, and lower economic growth. The government consists of a group of politicians, indexed by i = 1, … N . At the start of the first period, each politician / decides whether he should set up a system of bribe collection for his own private benefit and how high a bribe rate, τ i he should levy. Once set up, the system and the bribe rate remain in place until the end of the second period. 22 Citizens can observe the total bribe rate, τ, where τ = Σ i = 1 N τ

Mr. Paolo Mauro
There is increasing recognition that corruption has substantial, adverse effects on economic growth. But if the costs of corruption are so high, why don’t countries strive to improve their institutions and root out corruption? Why do many countries appear to be stuck in a vicious circle of widespread corruption and low economic growth, often accompanied by ever-changing governments through revolutions and coups? A possible explanation is that when corruption is widespread, individuals do not have incentives to fight it even if everybody would be better off without it. Two models involving strategic complementarities and multiple equilibria attempt to illustrate this formally.
Mr. Paolo Mauro

the start of the first period, each politician i decides whether he should set up a system of bribe collection for his own private benefit, and how high a bribe rate, τ i , he should levy. Once set up, the system and the bribe rate remain in place until the end of the second period. 22 Citizens can observe the total bribe rate, τ, where τ = ∑ i = 1 N τ i as well as all other aggregate variables. However, they cannot observe who extracts the bribes, that is, they do not know each individual politician

Deepak Lal, Bimal Jalan, Guy Pfeffermann, Rüdiger Dornbusch, Sebastian Edwards, John Odling Smee, Ronald McKinnon, Mr. Alan A. Tait, Michael Roemer, Christine Jones, Mr. Michael G. Spencer, Miroslav N. Jovanovic, Richard G. Lipsey, Coralie Bryant, and Georg Sorenson

, although increasing the incentive to audit, also increase the incentive to evade taxes and thus increase the value of the bribe. Whether or not the increased bribe reduces revenue more than the reduced likelihood of audit with an equivalent reduction in tax rates would be an interesting empirical problem. However, given the data needed for “areas of future theoretical and empirical research” (e.g., among others, the proportion of corrupt auditors and the agreed bribe rate), the likelihood of rigorous testing seems remote. Three chapters on informal credit markets

Ms. Elaine Karen Buckberg
Although financial stabilization has laid the foundation for growth, structural reform of the economy will determine whether Russia achieves sustained medium-term growth. The next step for Russia is to create an institutional and regulatory environment that fosters investment and promotes new private sector activity. This paper examines the most critical reforms for promoting private sector development: reforming the tax system, reducing red tape and bureaucratic corruption, strengthening the judicial system, and improving capital market infrastructure.
Ms. Elaine Karen Buckberg

because applicants cannot independently verify the requirements for approval. Based on a survey of 55 small shops in Moscow, Frye and Shleifer found that in 1995 the average shop had submitted to over 18 different inspections, conducted by three to four different agencies, and that 83 percent of shops had been fined by at least one inspector. 8 Moreover, on a scale of 1–5 (with 5 being the highest), shopkeepers rated on average the frequency of needing to bribe officials at 2.9. Pravda found corruption sufficiently common that in 1994 it published the following bribe

International Monetary Fund. Research Dept.
This first issue of Volume 51 for 2004 includes a new paper by Peter B. Clark and Jacques J. Polak, along with a tribute from the Editor to Mr. Polak in honor of his 90th birthday. This issue also launches a new featured section, "Data Issues," which will be devoted in future issues to on-going discussions of the latest in econometric and statistical tools for economists, data puzzles, and other related topics of interest to researchers.
Mr. Giovanni Melina, Hoda Selim, and Ms. Concha Verdugo Yepes

a bribe rate) which would boost private sector investment, (ii) an improvement in public investment processes which would raise public investment efficiency and translate into a larger capital stock 16 (iii) a more efficient government bureaucracy which would reduce tax evasion, widen the tax base and increase tax revenues, and finally, (iv) an improvement in oil sector governance that would correct mispricing of Congolese crude oil exports which would lead to higher oil fiscal revenues. Three different reform scenarios are calibrated. The baseline scenario

Mr. Paolo Mauro

benevolent government maximizes the lifetime utility of the representative consumer, subject to the constraint that τ = g/y; solving for the optimal τ yields τ ** =( g/y )*= α , (ii) A self-interested (infinitely-lived) government obtains consumption equal to C g =[τ-( g/y )] y ; that is, corrupt bureaucrats get to consume the “budget surplus” (τ represents the sum of a proportional tax rate and a proportional bribe rate); the self-interested government maximizes the present value of the future flow of utility derived from C g , subject to t τ ≥ g/y . In order to

International Monetary Fund. African Dept.

vulnerabilities through: (i) a reduction in bribery of public officials (see section II) and other distortions (akin to an implicit tax similar to a bribe rate) which would stimulate private sector investment; (ii) an improvement in public investment processes which would raise public investment efficiency and translate into a larger capital stock (see section IV); and (iii) a more efficient government bureaucracy which would reduce tax evasion, widen the tax base and increase tax revenues. 8 We simulate governance reforms that imply moving Gabon forward along these three