Is it Important to Know Public Sector Assets and Liabilities? The Nexus Between Public Sector Balance Sheet and Corruption

Abstract

This paper underscores the importance of the public sector balance sheet. Typically, fiscal policies are analysed without considering the stock of public sector assets and liabilities, focusing instead on flows such as the state budget, fiscal balance, and GDP. However, a primary objective of these flows should be to achieve specific outcomes in the stock of assets and liabilities. For instance, investments from the state budget should increase the stock of physical capital. Our central argument is that the absence of public sector balance sheets contributes to pervasive corruption and a broader disregard for public property. Using the IMF’s Public Sector Balance Sheet database, we demonstrate that the presence of a public sector balance sheet is positively associated with less corruption.