Government Decisions to encourage the Growth Under Uncontrolled Corruption

Abstract

One of the relationships between business and government can be established through a tax on capital of enterprises and an expense towards them by the government, equivalent to total collection. We consider this expense incomplete and thus we model our variable corruption which is generated over time. Under this scenario we find the optimal fiscal policy that maximizes growth and prove that fiscal policy may be tax or subsidiary according to the intensity of capital. Finally, show that corruption has a negative impact on tax policy and a positive impact on subsidiary policy.