Tackling fiscal deficits: the role of control of corruption in asia pacific countries

Abstract

Institutions are often presented as essential to complement the ineffective of market-based solutions in dealing with fiscal deficits in recent decades. This study examines the influences of the control of corruption on fiscal deficits in 26 Asia Pacific economies from 2002 to 2015. By using the system-GMM estimators, the results are in threefold. First, a significant positive effect of the control of corruption on fiscal balance is confirmed suggesting that a better tracking of corruption can help governments to improve the fiscal balance. Second, the effects of corruption controlling are diminished in economies with a large government and high external debt inviting these countries to adjust the government size to improve their external debts. Third, the control of corruption has a significant positive effect during the pre-crisis while it has an insignificant positive influence after the crisis. Such finding invites policymakers to focus more on the corruption controlling during booming periods, while they should pay more energy for the effectiveness of fiscal policy and reduce the government expenditures during the crisis periods.