Government integrity, government size and capital flight in Sub-Saharan Africa

Abstract

The study examines the effects of government integrity and government size on capital flight in Sub-Saharan Africa. It also examines the joint effect of government integrity and government size on capital flight, paying particular attention to how the effects differ across different income groups in Sub-Sa-haran Africa. The study employs three different estimation techniques namely Pooled Mean Group, Mean Group and Dynamic Fixed Effect to analyse a panel data of 20 SSA countries from 1996 to 2015. The study finds that a percentage increase in government integrity reduces capital flight by at least 0.0173 percent and 0.0153 percent in the long and short-run respectively. A percentage increase in tax burden is also found to increase capital flight by at least 0.0390 percent in the long run. The joint effect of government integrity and government spend-ing increases capital flight by 0.0065 percent, whereas the same effect of gov-ernment integrity and tax burden induces capital flight by 0.0407 percent in the long run. In upper income countries, government integrity is found to signifi-cantly reduce capital flight by 0.115 percent in the long run but the same effect is insignificant in both lower and lower middle income countries. However, tax burden increases capital flight by 0.0395 percent, 0.135 percent and 0.151 per-cent for the lower, lower middle and upper income groups respectively in the long run. The study recommends that governments of Sub-Saharan African countries should intensify campaigns in favour of anticorruption measures so as to help improve integrity of governments especially as countries transit from lower income status into upper income status. Tax burdens on local investors irrespective of the income groups of countries should be reduced to help mini-mise capital flight from the region.