On the Optimal Size of Public Sector Under Rent-Seeking Competition from State Coffers

24 Pages Posted: 21 Aug 2003

See all articles by Hyun Park

Hyun Park

Kyung-Hee University

Apostolis Philippopoulos

Athens University of Economics and Business - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); University of Essex

Vanghelis Vassilatos

University of Ioannina - Department of Economics

Date Written: July 2003

Abstract

This paper incorporates competition for fiscal transfers (or, equivalently, rent seeking from state coffers) into a standard general equilibrium model of economic growth and endogenously chosen fiscal policy. The government generates tax revenues, but then each selfinterested individual agent tries to extract, for his own personal benefit, a fraction of these revenues. Extracted tax revenues could alternatively be used to finance economy-wide infrastructure. We look at a Nash equilibrium in individual agents' behavior, and then investigate what the society should do to discourage rent-seeking competition. The focus is on the optimal size of public sector.

Keywords: Social Conflict, Fiscal Policy, Economic Growth

JEL Classification: D74, H3, O40

Suggested Citation

Park, Hyun and Philippopoulos, Apostolis and Vassilatos, Vanghelis, On the Optimal Size of Public Sector Under Rent-Seeking Competition from State Coffers (July 2003). Available at SSRN: https://ssrn.com/abstract=430000 or http://dx.doi.org/10.2139/ssrn.430000

Hyun Park

Kyung-Hee University ( email )

Dongdaemun-ku
Seoul, Gyeonggi-Do 446-701
Korea, Republic of (South Korea)

Apostolis Philippopoulos (Contact Author)

Athens University of Economics and Business - Department of Economics ( email )

76 Patission Street
GR-10434 Athens
Greece
+301 322 3187 (Phone)

CESifo (Center for Economic Studies and Ifo Institute for Economic Research) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Vanghelis Vassilatos

University of Ioannina - Department of Economics ( email )

45110 Ioannina
Greece

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