Corruption and government revenue: Evidence of a non-linear relationship driven by crises

Figures & data

Table 1. List of variables and data sources.

Indicator	Description	Source
Revenue	General government revenue (% of GDP)	IMF (2021), World Economic Outlook
Corruption	Negative of the ‘Control of corruption’ indicator score (so that values range from approx. −2.5=low corruption to +2.5=high corruption)	Kaufmann and Kraay (2021), Worldwide Governance Indicators
Crisis	Dummy equal to 1 if annual GDP growth rate below −1/-2/-3 percent, respectively	IMF (2021), World Economic Outlook
GDP per capita	GDP per capita, PPP (in 1000 constant 2017 international $)	World Bank (2023), World Development Indicators
Natural resources	Total natural resources rents (% of GDP), including oil rents, natural gas rents, coal rents (hard and soft), mineral rents, and forest rents.	World Bank (2023), World Development Indicators
Agriculture	Agriculture, forestry, and fishing, value added (% of GDP)	World Bank (2023), World Development Indicators
Trade	Trade (% of GDP): Sum of exports and imports of goods and services measured as a share of GDP	World Bank (2023), World Development Indicators
Foreign aid	Net ODA received (% of GNI)	World Bank (2023), World Development Indicators
Informal economy	Informal output (% of GDP), based on dynamic general equilibrium model estimates	Elgin et al. (2021), Informal Economy Database
Democracy	Polity2 Score (values from −10=autocracy to +10=democracy). The cutoff for democratic/non-democratic countries is 5.	Center for Systemic Peace (2023), Polity5 Project
Political stability	Political stability and absence of violence/terrorism (values from approx. −2.5=low stability to +2.5=high stability)	Kaufmann and Kraay (2021), Worldwide Governance Indicators

Source: Authors’ compilation.

Figure 1. Relationship between corruption and revenue in 1996 and 2020.

The fitted values (red line) are based on a bivariate linear regression. Countries with revenue-to-GDP ratios greater than one are excluded.

Source: Authors’ analysis.

Figure 2. Revenues in high/low corruption countries over time.

High corruption countries are defined as those with a negative value of the “Control of Corruption” indicator from the Worldwide Governance Indicators (WGI) database (all others are considered low corruption countries).

Source: Authors’ analysis.

Figure 3. Relationship between corruption and revenue in different country groups, 2020.

Income groups are defined according to World Bank classification. Democratic countries are defined as those with a Polity score above 5 (all others are considered non-democratic). Resource-poor countries are defined as those with total natural resources rents below 5 percent of GDP (all others are considered resource-rich). The fitted values (red lines) are based on bivariate linear regressions. Countries with revenue-to-GDP ratios greater than one are excluded. Data are for the year 2020.

Source: Authors’ analysis.

Table 2. Regression results—dependent variable: revenue (% GDP).

	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)
Corruption*Crisis	−1.037***	−0.612**	−0.657***	−0.543***	−1.295***	−0.730**	−0.905***	−0.695***
	(0.008)	(0.019)	(0.001)	(0.000)	(0.004)	(0.012)	(0.000)	(0.000)
Corruption	−2.047**	−1.066*	−0.288	0.030	−2.067**	−1.114*	−0.304	0.020
	(0.038)	(0.080)	(0.354)	(0.920)	(0.035)	(0.065)	(0.325)	(0.945)
Crisis (<-1%)	−1.172***	−1.208***	−0.833***	−0.572**
	(0.004)	(0.001)	(0.001)	(0.013)
Crisis (<-2%)					−1.049**	−1.038**	−0.754**	−0.617**
					(0.027)	(0.020)	(0.023)	(0.023)
GDP per capita		−0.114**	−0.028	−0.043*		−0.113**	−0.028	−0.044*
		(0.033)	(0.283)	(0.072)		(0.035)	(0.286)	(0.068)
Natural resources		0.327***	0.209***	0.190***		0.326***	0.207***	0.189***
		(0.000)	(0.000)	(0.000)		(0.000)	(0.000)	(0.000)
Agriculture		−0.236***	−0.099***	−0.102***		−0.236***	−0.097***	−0.099***
		(0.000)	(0.001)	(0.000)		(0.000)	(0.001)	(0.000)
Trade		0.015	0.006	0.006		0.015	0.006	0.006
		(0.182)	(0.223)	(0.251)		(0.179)	(0.211)	(0.240)
Foreign aid		0.111*	0.078*	0.045		0.113*	0.078*	0.045
		(0.095)	(0.062)	(0.267)		(0.090)	(0.061)	(0.261)
Revenue (t-1)			0.599***	0.588***			0.601***	0.589***
			(0.000)	(0.000)			(0.000)	(0.000)
Informal economy				0.002				−0.001
				(0.974)				(0.991)
Democracy				0.026				0.026
				(0.420)				(0.432)
Political stability				0.664***				0.669***
				(0.000)				(0.000)
Country FE	yes	yes	yes	yes	yes	yes	yes	yes
Year FE	yes	yes	yes	yes	yes	yes	yes	yes
Observations	4,442	3,871	3,726	3,115	4,442	3,871	3,726	3,115
Countries	188	172	172	140	188	172	172	140
R-squared (within)	0.093	0.233	0.533	0.542	0.093	0.230	0.534	0.542
R-squared (overall)	0.203	0.090	0.887	0.898	0.205	0.095	0.889	0.899

* p < 0.10, ** p < 0.05, *** p < 0.01. p-values in parentheses. Standard errors are clustered at the country level. Countries with revenue-to-GDP ratios greater than one are excluded.

Source: Authors’ analysis.

Table 3. Results for high/low and middle-income countries—dependent variable: revenue (% GDP).

	High Income				Low and Middle Income
	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)
Corruption*Crisis	0.363	0.215	0.244	0.136	−1.527**	−0.924*	−2.244***	−1.159**
	(0.281)	(0.534)	(0.520)	(0.713)	(0.025)	(0.056)	(0.004)	(0.013)
Corruption	−0.422	−0.657	−0.442	−0.632	−0.359	0.266	−0.338	0.263
	(0.426)	(0.274)	(0.398)	(0.302)	(0.333)	(0.435)	(0.347)	(0.429)
Crisis (<-1%)	0.966*	0.680			−0.209	−0.324
	(0.066)	(0.290)			(0.721)	(0.340)
Crisis (<-2%)			1.271*	0.734			0.263	−0.308
			(0.052)	(0.314)			(0.705)	(0.346)
Revenue (t-1)	0.479***	0.499***	0.480***	0.499***	0.616***	0.605***	0.618***	0.606***
	(0.000)	(0.000)	(0.000)	(0.000)	(0.000)	(0.000)	(0.000)	(0.000)
Natural resources	0.431***	0.357***	0.430***	0.354***	0.166***	0.154***	0.164***	0.154***
	(0.000)	(0.000)	(0.000)	(0.001)	(0.000)	(0.000)	(0.000)	(0.000)
Agriculture	−0.211*	−0.256**	−0.204*	−0.249**	−0.088***	−0.087***	−0.083***	−0.083***
	(0.064)	(0.038)	(0.071)	(0.044)	(0.004)	(0.001)	(0.007)	(0.001)
Trade	−0.005	−0.006	−0.004	−0.006	0.019**	0.012	0.020**	0.012
	(0.480)	(0.486)	(0.532)	(0.509)	(0.023)	(0.158)	(0.021)	(0.153)
Foreign aid	0.223	−0.259	0.244	−0.253	0.088**	0.039	0.088**	0.039
	(0.143)	(0.300)	(0.121)	(0.316)	(0.038)	(0.308)	(0.040)	(0.304)
Informal economy		0.158		0.155		0.003		0.001
		(0.147)		(0.153)		(0.953)		(0.982)
Democracy		−0.126**		−0.122**		0.037		0.037
		(0.043)		(0.049)		(0.263)		(0.257)
Political stability		−0.049		−0.039		0.690***		0.693***
		(0.913)		(0.932)		(0.000)		(0.000)
Country FE	yes	yes	yes	yes	yes	yes	yes	yes
Year FE	yes	yes	yes	yes	yes	yes	yes	yes
Observations	1,272	1,065	1,272	1,065	2,509	2,088	2,509	2,088
Countries	56	46	56	46	121	97	121	97
R-squared (within)	0.486	0.533	0.488	0.533	0.564	0.562	0.566	0.562
R-squared (overall)	0.639	0.606	0.642	0.610	0.882	0.844	0.884	0.845

Income groups are defined according to World Bank classification. Countries with revenue-to-GDP ratios greater than one are excluded. * p < 0.10, ** p < 0.05, *** p < 0.01. p-values in parentheses. Standard errors are clustered at the country level.

Source: Authors’ analysis.

Table 4. Results for democratic/Non-democratic countries—dependent variable: revenue (% GDP).

	Democratic				Non-democratic
	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)
Corruption*Crisis	−0.124	−0.114	−0.224	−0.212	−0.809**	−0.532*	−1.218***	−0.853**
	(0.407)	(0.477)	(0.193)	(0.248)	(0.021)	(0.084)	(0.005)	(0.042)
Corruption	−0.095	−0.232	−0.100	−0.234	−0.481	0.035	−0.476	0.052
	(0.786)	(0.502)	(0.775)	(0.502)	(0.377)	(0.956)	(0.376)	(0.933)
Crisis (<-1%)	−0.129	−0.081			−1.142***	−1.038**
	(0.496)	(0.681)			(0.002)	(0.015)
Crisis (<-2%)			−0.061	−0.010			−1.020**	−1.077
			(0.784)	(0.965)			(0.048)	(0.108)
Revenue (t-1)	0.559***	0.544***	0.560***	0.545***	0.558***	0.546***	0.560***	0.546***
	(0.000)	(0.000)	(0.000)	(0.000)	(0.000)	(0.000)	(0.000)	(0.000)
GDP per capita	−0.150***	−0.142***	−0.149***	−0.141***	0.033	0.017	0.034	0.018
	(0.000)	(0.001)	(0.000)	(0.001)	(0.382)	(0.654)	(0.376)	(0.650)
Natural resources	0.160***	0.140***	0.160***	0.140***	0.221***	0.222***	0.219***	0.221***
	(0.002)	(0.004)	(0.002)	(0.004)	(0.000)	(0.000)	(0.000)	(0.000)
Agriculture	−0.086**	−0.063	−0.087**	−0.064	−0.122***	−0.128***	−0.116***	−0.121***
	(0.028)	(0.121)	(0.026)	(0.116)	(0.003)	(0.006)	(0.004)	(0.008)
Trade	0.019***	0.017**	0.019***	0.017**	0.004	−0.003	0.004	−0.003
	(0.008)	(0.023)	(0.007)	(0.021)	(0.587)	(0.668)	(0.577)	(0.669)
Foreign aid	0.217***	0.146**	0.217***	0.146**	0.033	0.009	0.034	0.011
	(0.000)	(0.048)	(0.000)	(0.048)	(0.434)	(0.835)	(0.425)	(0.801)
Informal economy		0.076		0.075		−0.046		−0.053
		(0.227)		(0.235)		(0.495)		(0.428)
Political stability		0.317		0.321		0.800***		0.811***
		(0.257)		(0.249)		(0.003)		(0.003)
Country FE	yes	yes	yes	yes	yes	yes	yes	yes
Year FE	yes	yes	yes	yes	yes	yes	yes	yes
Observations	1,979	1,900	1,979	1,900	1,747	1,401	1,747	1,401
Countries	106	99	106	99	106	84	106	84
R-squared (within)	0.486	0.440	0.487	0.440	0.499	0.527	0.500	0.528
R-squared (overall)	0.743	0.721	0.747	0.727	0.828	0.833	0.831	0.833

Democratic countries are defined as those with a Polity score above 5 (all others are considered non-democratic). Countries with revenue-to-GDP ratios greater than one are excluded. * p < 0.10, ** p < 0.05, *** p < 0.01. p-values in parentheses. Standard errors are clustered at the country level.

Source: Authors’ analysis.

Table 5. Results for resource-rich/Resource-poor countries—dependent variable: revenue (% GDP).

	Resource Rich				Resource Poor
	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)
Corruption*Crisis	−1.179*	−0.656	−1.828*	−0.757	−0.105	−0.144	−0.163	−0.214
	(0.059)	(0.249)	(0.054)	(0.376)	(0.410)	(0.280)	(0.296)	(0.173)
Corruption	0.883	0.999	0.906	1.000	−0.501**	−0.123	−0.515**	−0.123
	(0.248)	(0.147)	(0.232)	(0.142)	(0.027)	(0.599)	(0.023)	(0.597)
Crisis (<-1%)	−1.304*	−1.484*			−0.310	−0.063
	(0.066)	(0.055)			(0.159)	(0.705)
Crisis (<-2%)			−0.961	−1.683			−0.183	−0.052
			(0.418)	(0.131)			(0.427)	(0.792)
Revenue (t-1)	0.517***	0.472***	0.519***	0.474***	0.719***	0.753***	0.720***	0.753***
	(0.000)	(0.000)	(0.000)	(0.000)	(0.000)	(0.000)	(0.000)	(0.000)
GDP per capita	0.147*	0.083	0.146*	0.081	−0.083***	−0.061**	−0.082***	−0.061**
	(0.072)	(0.128)	(0.071)	(0.137)	(0.002)	(0.017)	(0.002)	(0.016)
Agriculture	−0.112**	−0.130***	−0.105**	−0.124***	−0.012	−0.046*	−0.013	−0.046*
	(0.021)	(0.002)	(0.034)	(0.002)	(0.719)	(0.072)	(0.707)	(0.072)
Trade	0.055***	0.049***	0.055***	0.049***	0.006	0.004	0.006	0.004
	(0.000)	(0.001)	(0.000)	(0.001)	(0.205)	(0.390)	(0.199)	(0.377)
Foreign aid	0.108*	0.059	0.108*	0.060	0.048	0.038	0.048	0.037
	(0.053)	(0.231)	(0.052)	(0.225)	(0.319)	(0.495)	(0.322)	(0.499)
Informal economy		−0.104		−0.106		0.068		0.067
		(0.198)		(0.196)		(0.117)		(0.124)
Democracy		0.094		0.093		0.006		0.005
		(0.182)		(0.183)		(0.814)		(0.823)
Political stability		1.236***		1.237***		0.169		0.170
		(0.000)		(0.000)		(0.232)		(0.226)
Country FE	yes	yes	yes	yes	yes	yes	yes	yes
Year FE	yes	yes	yes	yes	yes	yes	yes	yes
Observations	1,279	1,130	1,279	1,130	2,447	1,985	2,447	1,985
Countries	88	79	88	79	137	112	137	112
R-squared (within)	0.507	0.490	0.508	0.491	0.618	0.681	0.617	0.681
R-squared (overall)	0.806	0.800	0.808	0.802	0.957	0.957	0.958	0.957

Resource-poor countries are defined as those with total natural resources rents below 5 percent of GDP (all others are considered resource-rich). Countries with revenue-to-GDP ratios greater than one are excluded. * p < 0.10, ** p < 0.05, *** p < 0.01. p-values in parentheses. Standard errors are clustered at the country level.

Source: Authors’ analysis.

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