Abstract:
This paper utilizes an otherwise standard micro-founded general-equilibrium setup, which is augmented with an output-evasion mechanism to assess the magnitude of corruption, and the effect of corruption on stock prices. The model is calibrated to Bulgaria after the introduction of the currency board (1999-2019), as one of the poorest EU states. A computational experiment performed within this setup predicts that corruption has a negative effect on stock prices. Spending on law and order, and better bureaucratic quality lower corruption, and increase stock prices.
