When does public debt hurt inequality in Africa?

Abstract

PurposeThe question of what level of public debt can increase inequality has become crucial in Africa. In this study, the authors examine the effect of public debt on inequality in Africa and estimate the debt-inequality threshold. The authors then examine the moderating role of tax burdens and corruption in the relationship between public debt and inequality.Design/methodology/approachUsing data from the period 2005 to 2019 in 38 African countries, the generalized method of moment and the dynamic panel threshold regression techniques were employed to achieve the purpose of the study.FindingsThe results reveal that a 1% increase in public debt leads to a rise in inequality by about 0.17%. However, the effects doubles when the public debt ratio hits 57.47%. Tax burden worses the effect of public debt by about 2.9 percentage points, while control of corruption reduces debt effect on inequality by 61 percentage points.Research limitations/implicationsOwing to data availability, the study period was restricted to 2005 to 2019. Moreover, the study could not consider the disagreggation of inequality into different income groups due to pausty of data. While this could narrow the scope of the study, the results provide an important insight for policy makers.Originality/valueThis contributes to the scant literature on the effect of public debt on income inequality in African countries. This study is a novelty because its provides the level of public debt which worsens inequality in Africa, as well as the moderating effects of tax burden and corruption control.Peer reviewThe peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-08-2022-0581