Abstract
It is increasingly recognized that good understanding on the corruption-related causes and remedies of the modern fiscal crisis would bolster informed decisions and key governance standards. Many of the governance weaknesses have been exacerbated by ingrained fiscal indiscipline and lack of effective bureaucratic provisions. These concerns necessitate ongoing research efforts aimed at galvanizing the best compilation of perspectives on the role of public institutions in debt accumulation process. Hence, this study examines the long run and short run effect of corruption on public debt in Nigeria over the period of 1996 to 2017 using ARDL bound test to cointegration analysis. Empirical evidence reveals that both corruption index and control of corruption have an insignificant adverse effect on public debt in the long run, but with a significant influence in the short run. Considering the long-term implication, current anti-corruption efforts might be ineffective in enhancing strategic monitoring and sustainable fiscal standards. Nonetheless, it is emphasized that effective corruption control measures could mitigate spiralling incidence of government debt. Further findings indicate that there exists bi-directional causality between corruption index and public debt, whereas none is found between control of corruption and public debt. The study suggests that strong corruption-based control mechanisms are fundamentals to decreasing fiscal deficits and debt reduction. Overall, a significant insight distills from the study is that the goal of attaining global financial stability and fiscal sustainability through sound regulatory framework has embodied the provisions that enhance corruption-reducing measures and institutional standards to curb persistent debt accumulation.
Highlights
The orthodox stance on the concept of structural gap is that when fiscal revenues of the state are insufficient to finance everincreasing public expenditures
Concluding Remarks It is increasingly recognized that good understanding on the corruption-related causes and remedies of the modern fiscal crisis would bolster informed decisions and key governance standards
While pairwise Granger causality test was applied to know the causal direction between corruption indicators public debt, other significant tests were checked for
Summary
The orthodox stance on the concept of structural gap is that when fiscal revenues of the state are insufficient to finance everincreasing public expenditures. The quality of institutions shapes the effect of government spending, and determines the growth rate of public debt Another theoretical linkage in the literature is anchored on the elite theory. Results indicate that corruption leads to increased public debt, but the effect seems to be heterogeneous across income-related sample splits; such that in advanced economies, it is stronger, while in less-developed countries, it appears to be weaker and less statistically robust. Transparency International Corruption Perceptions Index and the Kaufmann et al, 2010 —corruption index) for 126 countries over the period of 1996–2012, estimates reveal that increased corruption and a larger shadow economy result to a rise in public debt. Recognizing that a large literature concludes on the damaging effect of corruption on any economy, findings reveal that corruption positively influences public debt in the sample countries. A sufficient gap is left for a study assessing how corruption affects the spiralling incidence of public debt in Nigeria
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