The article investigates the potential impact of corruption on economic growth by examining the effect that corruption may have on several significant determinants of economic growth, namely, investment in human, private and public capital, and on governance. Our theoretical approach allows for corruption to influence economic growth directly and indirectly through different investment and governance channels. All previous empirical work on this issue has been based on national income and product accounts (NIPA) data, which do not normally break down gross domestic investment into its private and public sector, and if they do, they misclassify investment by public enterprises as private investment, potentially biasing empirical findings. In this article we use a data set from the International Finance Corporation that bypasses these problems. We find that the impact of corruption on the level of public investment appears to be more ambiguous than it has been found in the previous literature. We, however, find that the impact of corruption on the accumulation of private capital is significantly more damaging than what has been previously found. We also find that the impact of corruption on governance is unambiguously negative, which further deters economic growth.

A frequent finding in the local public finance literature is that renters are more likely to support expansions in the local budget than are homeowners. The renters' illusion hypothesis (renters are less aware of tax increases than are homeowners) has been commonly used to explain this behavior This article examines the alternative hypothesis of renters' rationality. It is argued that renters' behavior is a rational and selfish response to a fiscal environment that provides them, as a group, with larger net benefits than it doesfor homeowners. I use bond referendum data to show that, even when renters and homeowners of the same income level are assumed to receive the same net benefits, it is erroneous to interpret the stronger support by renters of the proposals, as previous literature has, as a manifestation of fiscal illusion. The article also makes an attempt to estimate different net benefits from the referendum for renters and homeowners of different income levels.

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