Abstract:
This paper proposes a possible reason for the government debt over-accumulation in some of the developed economies. It builds a simple model relating the level of government debt to the degree of corruptness of the public officials in the country, using the neoclassical economy framework with discretionary and non-benevolent government and focusing on Markov perfect equilibria. It shows, that the fact of public corruption results in higher than optimal public debt levels, and tries to reproduce the debt-to-GDP ratios in the advanced OECD countries as a function of the measure of public corruption in these countries. In the empirical part of the paper the assumptions and predictions of the model are tested in a panel of the OECD member states.