Shadow Economy, Corruption and Public Debt in Spain

The aim of this paper is to study the relationship between the shadow economy and corruption as determinants of public debt in the Spanish Autonomous Communities. In addition, we construct a Corruption Perception Index for those regions. Our data constitute panel data for the period 2000–2012. The results show that the volume of the shadow economy has a significant and positive impact on regional public debt. Corruption also shows a direct and significant relationship with public debt in the Autonomous Communities, although its impact is lower than that of the shadow economy. We extract some implications for the public authorities