Rent-Seeking Bureaucracies and Oversight in a Simple Growth Model

Abstract

Following recent cross-country empirical work, research on public policy and growth has come to examine the impact of inefficient or corrupt bureaucracies. Most of this work has emphasized the interactions between bureaucracies and private markets. By contrast, this paper focuses on the relationship between rent-seeking bureaucracies and their political authority. We emphasize two main points. First, when oversight is relatively costly, the political authority exercises little monitoring of its agencies which reduces the effectiveness of productive government spending. Second, when the technology used to provide public services is poor, as in many developing economies, bureaus better succeed in requesting overly large budgets before triggering any monitoring. Both of these characteristics contribute to reducing the growth rate of already poor economies.

JEL Classification: E13, O10