Politics, Corruption, and Economic Growth 6 Chapters 4 and 5 extended the two-period investment model to form a complete growth model. Here, we add endogenous theories of fiscal policy with selfish political motives, in the spirit of Chap. 3, to the growth model. First, we examine the consequence of a powerful kleptocracy for the economic growth of a developing country. Next, we consider a less drastic scenario, where there is interest group pressure on the government of a developing country that may bias policies against economic development. In Chap. 3, we saw how a proliferation of interest groups causes a rise in government transfers as democracies mature in the later stages of development. An important interest group during the early stages of development is comprised of large landowners. In this chapter we focus on the interaction between the political influence of landowners, the structural transformation, and the tax base that affects the growth in governments of developing countries. Finally, we examine the interplay between tax evasion and corruption by public officials and its consequences for private and public capital accumulation. Tax evasion, a major policy issue around the world, is the newest feature of this chapter. As indicated in Chap. 1, where there is corruption there tends to be tax evasion. In developing countries, tax evasion limits growth by reducing the funding for important public infrastructure projects. In developed economies, tax evasion is one reason that expenditures exceed tax revenue, increasing the reliance on govern- ment borrowing and potentially contributing to a public debt crisis. It is becoming increasingly clear that corruption and tax evasion are related in various ways, making it difficult to talk about one without the other. To introduce the fundamentals in as simple a setting as possible, we initially abstract from government debt. The important extension to allow for government borrowing is the subject of Chap. 7. In Sect. 6.1, we present a simple theory of taxation and public capital formation. We follow our previous approach of modeling the government as we do any other economic agent—by specifying its preferences, constraints, and objectives. There is no deep model of the politics that determine how the government is chosen or how their policies are influenced by voters and interest groups. Instead we take as given the politics of a country that determine the “reduced-form” preference parameters of # The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 M. Ivanyna et al., The Macroeconomics of Corruption, Springer Texts in Business and Economics, https://doi.org/10.1007/978-3-030-67557-8_6 185