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New evidence on corruption and government debt from a global country panel

Author

Listed:
  • Emmanuel Apergis
  • Nicholas Apergis
Abstract
Purpose - The purpose of this paper is to explore the link between corruption and government debt through a regime-based approach. Design/methodology/approach - The empirical analysis makes use of a panel of 120 countries, spanning the period 1999–2015. The study makes use of the Panel Smooth Transition Regression (PSTR) methodological approach, as well as two alternative measures of corruption. Findings - The empirical results document that the relationship between corruption and debt is non-linear, while a strong threshold effect was present as well. Public debt appears to respond faster to a high corruption regime compared to a low corruption regime, while an increase in the size of the shadow economy, government expenses, the inflation rate, interest payments on debt and military expenditure all increased the debt to GDP ratio. By contrast, an increase in GDP per capita, the secondary school enrollment ratio and the ratio of tax revenues to GDP led to a fall in the debt to GDP ratio. The findings survive certain robust checks when the role of the 2008 financial crisis is explicitly considered, as well as when two separate country samples were considered, i.e. developed vs developing countries. Practical implications - Governments should aim to control both corruption and the size of the shadow economy if they really wish to reduce any high levels of their public debt. As debt levels respond faster to high corruption regimes, it is necessary that measures to reduce corruption are complemented by higher GDP per capita growth rates, enrolment rates and higher tax revenues. Originality/value - The novelty of the paper is that it investigates for the first time, to the best of the authors’ knowledge, the presence of non-linearity between corruption and government debt. It proposes non-linear panel cointegration and causality tests, as well as a non-linear panel error correction model that allows for smooth changes between regimes, hence, examining causal relationships in each regime separately.

Suggested Citation

  • Emmanuel Apergis & Nicholas Apergis, 2019. "New evidence on corruption and government debt from a global country panel," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 46(5), pages 1009-1027, August.
    • Handle: RePEc:eme:jespps:jes-03-2018-0088
    DOI: 10.1108/JES-03-2018-0088
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    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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    Cited by:

    1. Alfredo Monte & Luca Pennacchio, 2020. "Corruption, Government Expenditure and Public Debt in OECD Countries," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 62(4), pages 739-771, December.
    2. Nusrat Farzana & Md Qamruzzaman & Yeasmin Islam & Piana Monsur Mindia, 2023. "Nexus between Personal Remittances, Financial Deepening, Urbanization, and Renewable Energy Consumption in Selected Southeast Asian Countries: Evidence from Linear and Nonlinear Assessment," International Journal of Energy Economics and Policy, Econjournals, vol. 13(6), pages 270-287, November.
    3. Alfredo Monte & Luca Pennacchio, 0. "Corruption, Government Expenditure and Public Debt in OECD Countries," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 0, pages 1-33.
    4. Salma Karim & Md. Qamruzzaman & Ishrat Jahan, 2023. "Nexus between Government Debt, Globalization, FDI, Renewable Energy, and Institutional Quality in Bangladesh," International Journal of Energy Economics and Policy, Econjournals, vol. 13(3), pages 443-456, May.

    More about this item

    Keywords

    Corruption; Shadow economy; Panel data; 120 countries; Government debt; E6; H63; C33;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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