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Inequality and Corruption: Evidence from US States

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Author Info

  • James E. Alt

    (Department of Government, Harvard University)

  • David Dreyer Lassen

    (Department of Economics, University of Copenhagen)

Abstract

High-quality data on state-level inequality and incomes, panel data on corruption convictions, and careful attention to the consequences of including or excluding fixed effects in the panel specification allow us to estimate the impact of income considerations on the decision to undertake corrupt acts. Following efficiency wage arguments, for a given institutional environment the corruptible employee’s or official’s decision to engage in corruption is affected by relative wages and expected tenure in the public sector, the probability of detection, the cost of fines and jail terms, and the degree of inequality, which indicate diminished prospects facing those convicted of corruption. In US states over 25 years we show that inequality and higher government relative wages significantly and robustly produce less corruption. This reverses other findings of a positive association between inequality and corruption, which we show arises from long-run joint causation by unobserved factors.

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Bibliographic Info

Paper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 08-02.

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Length: 31 pages
Date of creation: Aug 2008
Date of revision:
Handle: RePEc:kud:epruwp:08-02

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Related research

Keywords: corruption; rent seeking; inequality; Gini coefficient; efficiency wage; public sector wages;

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Cited by:
  1. Hamilton, Alexander, 2013. "Small is beautiful, at least in high-income democracies: the distribution of policy-making responsibility, electoral accountability, and incentives for rent extraction," Policy Research Working Paper Series 6305, The World Bank.

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