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Is there a trade-off between income inequality and corruption? Evidence from Latin America

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  • Stephen Dobson
  • Carlyn Ramlogan

Abstract

Conventional economic thinking says corruption and income inequality are positively related. In contrast, this study finds that lower corruption is associated with higher income inequality. The finding of a trade-off is not unexpected in the context of Latin America, for two reasons. First, Latin America has a large informal sector and corruption-reducing polices impose a transaction cost on this sector whose members are among the poorest. Second, redistributive measures, promoted by corrupt elements in society, are often cut back with institutional reform and this serves to worsen inequality. The results imply that corruption-reducing policies aimed at lowering inequality may be misguided.

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File URL: http://www.ntu.ac.uk/research/document_uploads/85430.pdf
File Function: First version, 2009
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Bibliographic Info

Paper provided by Nottingham Trent University, Nottingham Business School, Economics Division in its series Working Papers with number 2009/4.

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Date of creation: Jun 2009
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Handle: RePEc:nbs:wpaper:2009/4

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Web page: http://www.ntu.ac.uk/nbs

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Keywords: corruption; Latin America; income inequality; instrumental variables; panel data.;

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References

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  1. Bourguignon, Francois & Morrisson, Christian, 1998. "Inequality and development: the role of dualism," Journal of Development Economics, Elsevier, vol. 57(2), pages 233-257.
  2. Sanjeev Gupta & Hamid Davoodi & Rosa Alonso-Terme, 2002. "Does corruption affect income inequality and poverty?," Economics of Governance, Springer, vol. 3(1), pages 23-45, 03.
  3. Albanesi, Stefania, 2007. "Inflation and inequality," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1088-1114, May.
  4. Alesina, Alberto & Angeletos, George-Marios, 2005. "Corruption, inequality, and fairness," Journal of Monetary Economics, Elsevier, vol. 52(7), pages 1227-1244, October.
  5. Kwabena Gyimah-Brempong, 2002. "Corruption, economic growth, and income inequality in Africa," Economics of Governance, Springer, vol. 3(3), pages 183-209, November.
  6. Barro, Robert J, 2000. " Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
  7. Kwabena Gyimah-Brempong & Samaria de Gyimah-Brempong, 2006. "Corruption, Growth, and Income Distribution: Are there Regional Differences?," Economics of Governance, Springer, vol. 7(3), pages 245-269, August.
  8. Mattias Lundberg & Lyn Squire, 2003. "The simultaneous evolution of growth and inequality," Economic Journal, Royal Economic Society, vol. 113(487), pages 326-344, 04.
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Cited by:
  1. Roy Cerqueti & Raffaella Coppier & Gustavo Piga, 2012. "Corruption, growth and ethnic fractionalization: a theoretical model," Journal of Economics, Springer, vol. 106(2), pages 153-181, June.
  2. Dobson, Stephen & Ramlogan-Dobson, Carlyn, 2012. "Inequality, corruption and the informal sector," Economics Letters, Elsevier, vol. 115(1), pages 104-107.
  3. Dobson, Stephen & Ramlogan-Dobson, Carlyn, 2012. "Why is Corruption Less Harmful to Income Inequality in Latin America?," World Development, Elsevier, vol. 40(8), pages 1534-1545.

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