Figures and Tables for Corruption and Public Debt March 20, 2015 1
1 Figures central government debt, % GDP 20 40 60 80 100 120 ISL FIN SWE DNK AUS LUX AUT GBR IRL NOR DEU USA FRA BEL ESP PRT HUN 0.1.2.3.4.5 corruption index SVK CZE GRC ITA datapoints of 2008 fitted values Figure 1: Central government debt vs. corruption in OECD countries Note Y-axis: central government debt, % GDP; datasource - World Bank s WDI. X-axis: index of corruption, 0 - smallest possible corruption, 1 - biggest possible corruption; datasource - Worldwide Governance Indicators, corruption index (linear transformation). Circles denote corresponding points in the dataset, dashed gray line is the trend line (fitted values). Slope coefficient of the trend line is 92.4 (statistically significant at 3% level) 2
Θ g 2 Θ g 3 0.6 0.6 0.0 0 5 10 15 20 0.0 0 5 10 15 20 Θ g 8 Θ g 0.67 0.6 0.6 0.0 0 5 10 15 20 0.0 0 5 10 15 20 Figure 2: Debt/capital dynamics Note Figures show transition paths of debt to capital ratio for different values of θ g - institutional checks on corruption. The computations are based on the following values for the model s parameters: θ τ = 0.7, ϕ = 1.3, η = 1, ϵ = 4, α = 3, µ =, d = 9, β =, γ = 5.66. The initial values for state variables in all cases are k = 0.0027, g = 0.0027, b = 0 - as in the steady-state of the model without corruption and tax evasion. 3
tax rate corruption private capital 0.0025 0.0020 0.0015 0.0010 0.0005 public capital worker's productivity 0.0030 0.04 0.0025 0.0020 0.0015 0.03 0.02 0.0010 0.0005 0.01 Θgov 6 Θgov 0.62 Figure 3: Selected variables dynamics under different θ g Note The computations are based on the following values for the model s parameters: θ τ = 0.7, ϕ = 1.3, η = 1, ϵ = 4, α = 3, µ =, d = 9, β =, γ = 5.66. The initial values for state variables in all cases are k = 0.0027, g = 0.0027, b = 0 - as in the steady-state of the model without corruption and tax evasion. 4
government debt to GDP 20 40 60 80 100 120 1940 1960 1980 2000 2020 United States Turkey Italy Data source: IMF FAD Figure 4: Public debt dynamics in selected countries public debt, %GDP, without business cycles 20 40 60 80 100 120 1970 1980 1990 2000 2010 United States Turkey Italy Figure 5: Public debt net of business cycles in various countries Data source: IMF FAD, own calculations. Hodrick-Prescott filter, smoothing parameter 6.25. Annual data, over 1970-2010. 5
2 Tables Table 1: Equilibria with Different Institutional Safeguards against Corruption θ g τ u v b(1 + ϵ)/k Shortfall in y 0.00-9 6 0 0 0 2 0 0 0-7.00% 5 8 1-7.00% 4 2 0 0 0-11.00% 6 1 1 6-11.00% 6 7 3 0.09 8-19.00% 3 8 3-30.00% 6 8 2 2-33.00% 8 4 1 4-33.00% 0.65 3 0.05 6-35.00% 7 3 5 0.6-35.00% 0.67 8 0 0 0-33.00% 6 0.6 6 0.6-33.00% 1 0.66 0 0 0-53.00% 6 0.72 9 1.12-58.00% Notes: The computations are based on the following values for the model s parameters: κ = λ = 1, θ τ = 0.7, ϕ = 1.3, ϵ = 4, α = 3, µ =, d = 9, β =, γ = 4.76. 6
Table 2: Budget Elasticity of Corruption θ g E t 6 3.4 9 3.4 1 3.42 3 3.45 6 3.66 3.38 0.6 8.9 1.74 0.63 14.01 1.4 Notes: The computations are based on the following values for the model s parameters: κ = λ = 1, θ τ = 0.7, ϕ = 1.3, ϵ = 4, α = 3, µ =, d = 9, β =, γ = 4.76. Table 3: Public debt and corruption (1) b/se control of corruption, WGI -24.943 (6.852) real GDP per capita, USD 0.003 (0.001) Constant 405 (5.844) N obs 51 Note: Standard errors in parentheses. * p <, ** p < 0.05, *** p < 0.01. Dependent variable - public debt, %GDP. Sample: HIC and UMIC, non-rr, large. Large are countries with population over mln as of 2011. RR - resource-rich, according to the IMF s definition. HIC - high income countries, UMIC - upper middle countries, as of 2011, World Bank classification. All variables averaged over 1990-2011. Regressions with additional controls have been tried. Results (signs and magnitudes of coefficients of interest) are qualitatively similar. 7
Table 4: Public debt cycles and corruption (1) b/se control of corruption, WGI -14.376 (8.736) wgicor sq 3.726 (3.949) real GDP per capita, USD 0.000 (0.000) Constant 22.587 (4.625) N obs 39 Note: Standard errors in parentheses. * p <, ** p < 0.05, *** p < 0.01. Dependent variable - public debt cycles average amplitude, p.p. of GDP. Sample: HIC and UMIC, non-rr, large. Large are countries with population over mln as of 2011. RR - resource-rich, according to the IMF s definition. HIC - high income countries, UMIC - upper middle countries, as of 2011, World Bank classification. All variables averaged over 1990-2011. Regressions with additional controls have been tried. Results (signs and magnitudes of coefficients of interest) are qualitatively similar. Table 5: Public debt, corruption, and economic growth (1) b/se L10.real GDP per capita, thousands USD -0.054 (0.017) public debt, % GDP, av. last 10 years -0.015 (0.005) control of corruption, av. last 10 years 77 (58) control of corruption X public debt 0.009 (0.005) Constant 3.584 (54) N obs 117 Note: Standard errors in parentheses. * p <, ** p < 0.05, *** p < 0.01. Dependent variable - average GDP per capita growth in the last 10 years. Years included - 2001 and 2011 (subject to availability of data on corruption). Sample: HIC and UMIC, non-rr, large. Large are countries with population over mln as of 2011. RR - resource-rich, according to the IMF s definition. HIC - high income countries, UMIC - upper middle countries, as of 2011, World Bank classification. Regressions with additional controls have been tried. Results (signs and magnitudes of coefficients of interest) are qualitatively similar. 8
Table 6: Variables used in regressions: Comparative statics UMICs included in sample HIC UMIC Name Source Mean S.d. Mean S.d. public debt, % IMF FAD 61.5 31.6 52 27 GDP control of corruption, WGI WGI 1.42 0.71-0.05 4 real GDP per WB WDI 19.8 9 3.8 1.8 capita, thousand USD debt cycle amplitude, Section V 18.9 14.6 28.4 20 p.p. GDP HICs included in Australia, Austria, Belgium, Canada, Cyprus, Czech Republic, Denmark, sample Estonia, Finland, France, Germany, Greece, Hong Kong, Hungary, Ireland, Israel, Italy, Japan, Korea, Netherlands, New Zealand, Portugal, Singapore, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, United Kingdom, United States Argentina, Belarus, Brazil, Bulgaria, Costa Rica, Croatia, Fiji, Jamaica, Latvia, Lebanon, Lithuania, Malaysia, Mauritius, Montenegro, Panama, Poland, Romania, Serbia, South Africa, Turkey, Uruguay Notes: Summaries for all variables are computed over 1990-2011. HIC - high income countries, UMIC - upper middle income countries, as of 2011, World Bank classification. Excluded are small and resource-rich (RR) countries. Large are countries with population over mln as of 2011. RR - resource-rich, according to the IMF s definition. 9