Corruption, Government Expenditure and Public Debt in OECD Countries

Abstract

This paper contributes to the literature on the macroeconomic implications of corruption by investigating its impact on public debt. Using a panel of OECD countries over the period 1995–2015, we provide evidence that corruption increases public debt and that this effect is independent of the size of government expenditure. Our estimates suggest that if corruption was halved, public debt would decrease by 2% in the short term. Looking at countries characterized by high levels of both corruption and public debt, such as Greece and Italy, we find that the detrimental effect of corruption on public debt is also present in the long term. These findings have important implications for policy-makers, as they suggest that improved control of corruption is a possible instrument for curbing public debt in advanced economies.