This is a note on corruption and underground economy in a Kaldor-type model of the business cycle. It appears that when …

. Conditions under which lower-tier corruption arises as an equilibrium characterization of the game are identified. If … bureaucratic corruption sufficiently reduces the tax base, policies that deter corruption may be optimal. When monitoring is … expensive or ineffective, lower-level corruption arises as equilibrium. Tax farming and the sale of offices can occur in these …