Economic Analysis Of The Consequences Of Corruption Essay

875 Words Jan 27th, 2015 4 Pages
Economic Analysis of the Consequences of Corruption
I. A Reduction in Investment and Capital Inflows
Both Lambsdorff (n.d) and Tanzi (1998) are in agreement that corruption reduces the attractiveness of a nation to investors. Investors in this case should be understood to be both domestic and foreign. To this effect, Lambsdorff (n.d) affirms that corruption increases the risk factors of a nation, which are taken into account in determining the economic viability of a particular country as a destination for investment. Tanzi (1998) also reiterates that high rates of corruption serve to increase economic uncertainty, which in return increases cost of investment, especially in regards to taxation. A reduction in investment, more often than not, ultimately negatively impacts on the economic growth of the nation because production, which stimulates growth, is crippled due to lack of capital inflows. According to Lambsdorff (n.d), because of the uncertainty generated by corruption as an economic risk factor, loans are easily withdrawn, which may render a particular nation vulnerable to currency crisis.
II. A Reduction in Government Revenue, Expenditure, and Service Delivery
As stated before, the European Commissioner for Home Affairs states that European Union nations lose up to €120 million each year due to corruption. It is only logical to understand that a significant portion of this sum is largely related to revenue collection by the government. According to Tanzi (1998), this…

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