The hidden faces of cronyism : the accumulation of public debt -

Abstract

This paper aims at examining the potential effect of cronyism in the banking sector on public debt. Through the combination of models and cronyism indices constructed in 2006, I evaluate the potential channels through which public debt is affected by cronyism. I use data on sixty-six countries for the year 2015. Findings show that cronyism has a negative association with public debt. Yet, a closer look shows that although the cost of borrowing might decrease the size of lending increases which could lead to the escalation of public debt.