Public Debt, Corruption and Growth: Are There Any Threshold Effects?
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Adopting a Panel Threshold Regression (PTR) model, for 96 countries during the period 2010-2019, we propose to verify that the public debt-corruption-growth nexus is non-linear. The stylized facts show that growth starts to increase with debt and then it decreases. Remarkable differences are observed between high-income countries and low and middle-income countries in debt, corruption, and growth. For the whole sample, as well as for the two subsamples of high-income countries and low and middle-income countries, the results estimate thresholds associated to debt and to control of corruption that separate different growth regimes. Debt is a lever only if its level is low and/or control of corruption is high. The latter is estimated to have limited (for entire sample) and retarded (for high-income countries) the negative effects of debt on growth. Thus, for pro-growth debt, it is necessary to control debt and fight corruption. These factors contribute to canalize financial resources towards productive activities, to reduce uncertainty about the future and to stimulate capital accumulation.
Abstract
Adopting a Panel Threshold Regression (PTR) model, for 96 countries during the period 2010-2019, we propose to verify that the public debt-corruption-growth nexus is non-linear. The stylized facts show that growth starts to increase with debt and then it decreases. Remarkable differences are observed between high-income countries and low and middle-income countries in debt, corruption, and growth. For the whole sample, as well as for the two subsamples of high-income countries and low and middle-income countries, the results estimate thresholds associated to debt and to control of corruption that separate different growth regimes. Debt is a lever only if its level is low and/or control of corruption is high. The latter is estimated to have limited (for entire sample) and retarded (for high-income countries) the negative effects of debt on growth. Thus, for pro-growth debt, it is necessary to control debt and fight corruption. These factors contribute to canalize financial resources towards productive activities, to reduce uncertainty about the future and to stimulate capital accumulation.