Resum:
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We propose an extension of Alesina and Tabellini 's model (1987) to include corruption, which is understood as the presence of weak institutions collecting revenue through
formal tax channels. This paper analyses how conservative should an independent central
bank be when the institutional quality is poor. When there are no political distortions, we
show that the central bank has to be more conservative than the government, except with
complete corruption. In this particular case, the central bank should be as conservative
as the government. Further, we obtain that the relationship between the optimal relative
degree of conservativeness of the central bank and the degree of corruption is affected by
supply shocks. Concretely, when these shocks are not important, the central bank should
be less conservative if the degree of corruption increases. However, this result may not
hold when the shocks are relevant.
JEL classi fication: D6, D73, E52, E58, E62, E63.
Keywords: Central Bank Conservativeness; Corruption; Fiscal Policy; Monetary Policy; Seigniorage. |