engleski

The corruption mark-up : is corruption cost incorporated in the prices of goods and services in emerging and developed countries?

We use panel data models on a data set covering 32 European countries in order to investigate the effect of corruption on the aggregate price level. Along with modeling the overall price level, we also separately model the price level of consumer goods and the price level of consumer services, whereby we control for other factors that commonly influence the price level of an economy, such as income, trade openness, fiscal dominance, the intensity of local market competition, and real money supply. Our results suggest that besides already established adverse economic outcomes of corruption (such as lower growth, an inefficient public sector, underinvestment, increased cost of doing business), corruption in emerging economies also increases the general price level, thus in turn affecting the overall cost of living. This effect of corruption is twice as strong for consumer services, when compared to consumer goods. As opposed to emerging countries, in developed countries corruption does not seem to matter for price level determination.

price level ; corruption ; panel data models ; Europe

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