Home / Regular Issue / JSSH Vol. 29 (3) Sep. 2021 / JSSH-7379-2020

 

The Impact of Government Efficiency, Corruption, and Inflation on Public Debt: Empirical Evidence from Advanced and Emerging Economies

Wei Ni Soh, Haslinah Muhamad and Ong Tze San

Pertanika Journal of Social Science and Humanities, Volume 29, Issue 3, September 2021

DOI: https://doi.org/10.47836/pjssh.29.3.05

Keywords: Advanced countries, emerging countries, government efficiency, macroeconomics, public debt

Published on: 27 September 2021

This research investigates the empirical relationship of government efficiency, corruption, and inflation regarding public debt between advanced and emerging economies. Random effects estimation is used to analyse a sample of 40 countries. The analysis results show that corruption and inflation in advanced economies have a significant and positive effect on public debt. Corruption affects public debt to increase, but on the flip side, inflation affects public debt to decrease. In emerging economies, the results show a positive impact of government efficiency on public debt. Hence, government efficiency will be considered an obstacle when a policy initiated to reduce public debt. Meanwhile, policymakers should take note countries’ corruption and inflation rates when formulating policies to reduce public debt in advanced economies.

  • Abbas, S. A., Belhocine, N., El-Ganainy, A., & Horton, M. (2011). Historical patterns and dynamics of public debt - Evidence from a new database. IMF Economic Review, 59(4), 717-742.

  • Akitoby, B., Binder, A., & Komatsuzaki, T. (2017). Inflation and public debt reversals in the G7 countries. Journal of Banking and Financial Economics, 1(7), 28-50.

  • Alesina, A., & Tabellini, G. (1990). A positive theory of fiscal deficits and government debt. The Review of Economic Studies, 57(3), 403-414. https://doi.org/10.2307/2298021

  • Azzimonti, M., De Francisco, E., & Quadrini, V. (2014). Financial globalization, inequality, and the rising public debt. American Economic Review, 104(8), 2267-2302.

  • Barro, R. J. (1979). On the determination of the public debt. Journal of Political Economy, 87(5), 940-971.

  • Battaglini, M., & Coate, S. (2008). A dynamic theory of public spending, taxation, and debt. American Economic Review, 98(1), 201-236.

  • Benfratello, L., Del Monte, A., & Pennacchio, L. (2018). Corruption and public debt: A cross-country analysis. Applied Economics Letters, 25(5), 340-344.

  • Bergman, U. M., Hutchison, M. M., & Jensen, S. E. H. (2016). Promoting sustainable public finances in the European Union: The role of fiscal rules and government efficiency. European Journal of Political Economy, 44, 1-19. https://doi.org/10.1016/j.ejpoleco.2016.04.005

  • Coelli, T. (1998). A multitage methodology for the solution of orientated DEA models. Operations Research Letters, 23, 143-149. http://dx.doi.org/10.1016/S0167-6377(98)00036-4

  • Cook W. D., & Joe Z. (2014). DEA for two-stage networks: Efficiency decompositions and modeling techniques. Data Envelopment Analysis, 1-29.

  • Cooray, A., Dzhumashev, R., & Schneider, F. (2017). How does corruption affect public debt? An empirical analysis. World development, 90, 115-127. https://doi.org/10.1016/j.worlddev.2016.08.020

  • Elgin, C., & Uras, B. R. (2013). Public debt, sovereign default risk and shadow economy. Journal of Financial Stability, 9(4), 628-640.

  • Escolano, M. J. (2010). A practical guide to public debt dynamics, fiscal sustainability, and cyclical adjustment of budgetary aggregates. International Monetary Fund.

  • Fournier, J. M., & Bétin, M. (2018). Sovereign defaults: Evidence on the importance of government effectiveness (No. 1494). OECD Publishing.

  • Giannitsarou, C., & Scott, A. (2006). Inflation implications of rising government debt (No. w12654). National Bureau of Economic Research.

  • González-Fernández, M., & González-Velasco, C. (2014). Shadow economy, corruption and public debt in Spain. Journal of Policy Modeling, 36(6), 1101-1117.

  • Grigoli, F., & Kapsoli, M. J. (2013, August 28). Waste not, want not: The efficiency of health expenditure in emerging and developing economies (No. 13-187). International Monetary Fund. https://www.imf.org/en/Publications/WP/Issues/2016/12/31/Waste-Not-Want-Not-The-Efficiency-of-Health-Expenditure-in-Emerging-and-Developing-Economies-40899

  • Gupta, S., & Verhoeven, M. (2001). The efficiency of government expenditure: Experiences from Africa. Journal of policy modeling, 23(4), 433-467.

  • Hall, G. J., & Sargent, T. J. (2011). Interest rate risk and other determinants of post-WWII US government debt/GDP dynamics. American Economic Journal: Macroeconomics, 3(3), 192-214.

  • Hallerberg, M., & Wolff, G. B. (2008). Fiscal institutions, fiscal policy and sovereign risk premia in EMU. Public Choice, 136(3-4), 379-396.

  • Hauner, D., & Kyobe, A. (2008, September 1). Determinants of government efficiency (No. 2008-2228). International Monetary Fund. https://www.imf.org/en/Publications/WP/Issues/2016/12/31/Determinants-of-Government-Efficiency-22296

  • Herndon, T., Ash, M., & Pollin, R. (2014). Does high public debt consistently stifle economic growth? A critique of Reinhart and Rogoff. Cambridge Journal of Economics, 38(2), 257-279.

  • Heylen, F., Hoebeeck, A., & Buyse, T. (2013). Government efficiency, institutions, and the effects of fiscal consolidation on public debt. European Journal of Political Economy, 31, 40-59. https://doi.org/10.1016/j.ejpoleco.2013.03.001

  • IMF (2018). Public debt. https:// https://www.imf.org/en/Data

  • Liu, C., Moldogaziev, T. T., & Mikesell, J. L. (2017). Corruption and state and local government debt expansion. Public Administration Review, 77(5), 681-690.

  • Loungani, M. P., & Swagel, M. P. (2001, December). Sources of inflation in developing countries (Working Paper No. 1-198). International Monetary Fund. https://www.imf.org/external/pubs/ft/wp/2001/wp01198.pdf

  • Kim, E., Ha, Y., & Kim, S. (2017). Public debt, corruption and sustainable economic growth. Sustainability, 9(3), 433. https://doi.org/10.3390/su9030433

  • Mauro, P. (1998). Corruption and the composition of government expenditure. Journal of Public Economics, 69(2), 263-279.

  • Montes, G. C., & Paschoal, P. C. (2016). Corruption: What are the effects on government effectiveness? Empirical evidence considering developed and developing countries. Applied Economics Letters, 23(2), 146-150.

  • Panizza, U. (2008). Domestic and external public debt in developing countries (Discussion Paper No 188). United Nations Conference on Trade and Development. https://EconPapers.repec.org/RePEc:unc:dispap:188.

  • Pareto, V. (1906). Manual of political economy. Milan.

  • Reinhart, C. M., & Rogoff, K. S. (2010). Growth in a time of debt. American Economic Review, 100(2), 573-578.

  • Reinhart, C. M., & Rogoff, K. S. (2011). From financial crash to debt crisis. American Economic Review, 101(5), 1676-1706.

  • Reinhart, C. M., & Sbrancia, M. B. (2011, March). The liquidation of government debt (Working Paper 16893). National Bureau of Economic Research. https://www.imf.org/external/np/seminars/eng/2011/res2/pdf/crbs.pdf

  • Shleifer, A., & Vishny, R. W. (1993). Corruption. The Quarterly Journal of Economics, 108(3), 599-617. https://doi.org/10.2307/2118402

  • Tanzi, V., & Chu, K. Y. (Eds.). (1998). Income distribution and high-quality growth. Mit Press.

  • Tanzi, V., & Schuknecht, L. (1997). Reforming government: An overview of recent experience. European Journal of Political Economy, 13(3), 395-417.

  • Tarek, B. A., & Ahmed, Z. (2017). Institutional quality and public debt accumulation: An empirical analysis. International Economic Journal, 31(3), 415-435.

  • Transparency International. (2019, January 29). Asia Pacific: Little to no progress on anti-corruption. https://www.transparency.org/news/feature/asia_pacific_makes_little_to_no_progress_on_anti_corruption

  • Verhoeven, M., Gupta, M. S., & Tiongson, M. E. (1999, February 1). Does higher government spending buy better results in education and health care? International Monetary Fund. https://www.imf.org/en/Publications/WP/Issues/2016/12/30/Does-Higher-Government-Spending-Buy-Better-Results-in-Education-and-Health-Care-2892#:~:text=Does%20Higher%20Government%20Spending%20Buy%20Better%20Results%20in%20Education%20and%20Health%20Care%3F,-Author%2FEditor%3A& text=Summary%3A,improves%20education %20and%20health%20indicators.

  • Wang, H., Huang, J., & Li, H. (2017). Local government debt risk, fiscal expenditure efficiency and economic growth. In Proceedings of the Tenth International Conference on Management Science and Engineering Management (pp. 1565-1576). Springer.

  • World Bank. (2018). Government efficiency. https://govdata360.worldbank.org/indicators/h5f135ad9

ISSN 0128-7702

e-ISSN 2231-8534

Article ID

JSSH-7379-2020

Download Full Article PDF

Share this article

Recent Articles