Corruption and saving in a panel of countries

Abstract

Saving depends on the incentives to save and the ability to save. The literature provides evidence that many of the key determinants of saving are correlated with the incidence of corruption. There are also a priori reasons to expect a direct relationship between corruption and saving. Our paper extends the literature on corruption and capital flight to the empirical analysis of cross-country differences in the rate of saving. We present evidence that corruption adversely affects the gross national saving rate by encouraging capital flight. Our results also indicate that the level of income, the growth rate of real per capita income and the tax-GDP ratio are the important channels via which the effects of corruption on saving are transmitted. © 2007 Elsevier Inc. All rights reserved.