| This thesis addresses economic development in the context of endogenous corruption. We also ask whether economic growth exacerbates poverty or income inequality. The evidence to date is mixed. The thesis examines relationships among and between defined constraints on economic development by offering policy makers a unique method of measuring governance corruption's effects on education budgets and individual income. Governance corruption includes malfeasance, misfeasance, nonfeasance, or perpetrations involving state, non-state, and private sector actors that circumvent, distort, or manipulate the democratic process, and thereby undermine the government's revenue stream. Governance is the official governmental system and institutional 'rules of the game' by which a country is governed; state capture, rent seeking, and free riding behaviors corrupt the system. The Shadow Economy, acting as the surrogate for corruption, measures the percent of total productivity unaccounted for in the official GDP. The individual actor is the unit of measure; Central and Eastern European countries are the sample set; individual income is the dependant variable; and the independent variables are the Human Development Index, education expenditures, and the Shadow Economy. The analyses presented suggest clear evidence that as the size of the Shadow Economy increases, the budget for education expenditures as a percentage of the total national government expenses decreases. The evidence implies that as the education budget decreases, so does the official individual income, and therefore, available measures for economic growth are inadequate to measure income inequality, thereby leaving analyses and conclusions regarding the effects of economic growth on the individual actor, wanting. These findings are consistent with New Growth Theory, particularly, that education is critical to a healthy and sustainable economic development, and offer evidence that adding the effects of corruption to current economic growth models provides unique learning about growth's effects on income inequality. The practical application is that education expenditures and individual income are analyzed together and in light of the effect of corruption on them. This evidence may be appreciable to economic development and education policy making. |
