Skip to main content
Skip to McMaster Navigation Skip to Site Navigation Skip to main content
McMaster logo

New Department Working Paper

Dec 01, 2022


Professor of Economics & Graduate Chair, Alok Johri and PhD students, Farzana Alamgir and Johnny Cotoc together have posted the working paper titled, "The Bribe Rate and Long Run Differences in Sovereign Borrowing Costs"


Sovereign spreads and the level of bureaucratic diversion of government spending vary widely across emerging economies and are correlated with each other. We build a sovereign default model where the government is constrained to use corrupt bureaucrats to deliver public goods and services in order to explain these facts. The diversion policy parameters are estimated using data on public resources and monitoring efficiency and used to calibrate the model. We use data on the average gift needed to be given to win public contracts in a country as a measure of bureaucratic diversion because it allows us to quantify diversion of public resources whereas tax evasion is hard to measure. We tie down the efficiency level to the Rule of Law index. We show that economies with low monitoring efficiency display higher diversion levels and higher default risk (and spreads) than those with higher efficiency. These results emerge because defaults reduce diversion levels and this benefit from default is higher for low monitoring efficiency economies, which encourages default.

For the full set of working papers  please see:
RePEC/ideas (