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The comparative effect of corruption and Piketty’s second fundamental law of capitalism on inequality

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  • Fakir, Adnan M.S.
  • Ahmad, Azraf Uddin
  • Hosain, K.M. Masnun
  • Hossain, Mostafa Rafid
  • Gani, Ridhim Sadman

Abstract

We hypothesize that corruption, viewed as an institutional distortion has comparatively larger effects on inequality than the second fundamental law of capitalism proposed by Thomas Piketty. Reaffirming that corruption affects inequality in a non-linear fashion, we also find evidence that r−g increases inequality in the short run, indicating that pre-existing holders of capital derive greater shares of income. However, the effect of r−g is not as strong as that of corruption and is insignificant in highly unequal countries. This suggests that institutional factors play a more important role than the second fundamental law of capitalism in presence of high inequality.

Suggested Citation

  • Fakir, Adnan M.S. & Ahmad, Azraf Uddin & Hosain, K.M. Masnun & Hossain, Mostafa Rafid & Gani, Ridhim Sadman, 2017. "The comparative effect of corruption and Piketty’s second fundamental law of capitalism on inequality," Economic Analysis and Policy, Elsevier, vol. 55(C), pages 90-105.
    • Handle: RePEc:eee:ecanpo:v:55:y:2017:i:c:p:90-105
    DOI: 10.1016/j.eap.2017.04.006
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    Cited by:

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    2. Bosco, Bruno, 2019. "One size does not fit all: Quantile regression estimates of cross-country risk of poverty in Europe," Economic Analysis and Policy, Elsevier, vol. 62(C), pages 280-299.
    3. Bruno Emmanuel Ongo Nkoa & Jacques Simon Song, 2022. "Does Institutional Quality increase inequalities in Africa?," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 13(3), pages 1896-1927, September.
    4. Henri Njangang & Simplice A. Asongu & Eric Mouchili, 2022. "Does corruption starve? An African perspective," Working Papers 22/022, European Xtramile Centre of African Studies (EXCAS).
    5. Sulemana, Iddisah & Kpienbaareh, Daniel, 2018. "An empirical examination of the relationship between income inequality and corruption in Africa," Economic Analysis and Policy, Elsevier, vol. 60(C), pages 27-42.
    6. Bestari Dwi Handayani & Heri Yanto & Amin Pujiati & Abdul Rahim Ridzuan & J. S. Keshminder & Mohd Shahidan Shaari, 2022. "The Implication of Energy Consumption, Corruption, and Foreign Investment for Sustainability of Income Distribution in Indonesia," Sustainability, MDPI, vol. 14(23), pages 1-15, November.
    7. Policardo, Laura & Carrera, Edgar J. Sánchez, 2018. "Corruption causes inequality, or is it the other way around? An empirical investigation for a panel of countries," Economic Analysis and Policy, Elsevier, vol. 59(C), pages 92-102.
    8. Ali Sarkhosh-Sara & Khadije Nasrollahi & Karim Azarbayjani & Rasul Bakhshi Dastjerdi, 2020. "Comparative analysis of the effects of institutional factors and Piketty’s Hypothesis on inequality: evidence from a panel of countries," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 9(1), pages 1-28, December.
    9. Grote, U. & Nguyen, T.T., 2018. "Natural resource extraction and household welfare in rural Laos," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277061, International Association of Agricultural Economists.
    10. Dyah Setyaningrum, 2017. "E-Government as an Anti-Corruption Tool: Experience from Indonesia," GATR Journals afr149, Global Academy of Training and Research (GATR) Enterprise.
    11. Giuseppe Liddo & Andrea Morone, 2023. "Local income inequality, rent-seeking detection, and equalization: a laboratory experiment," Public Choice, Springer, vol. 196(3), pages 257-275, September.

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    More about this item

    Keywords

    Corruption; Inequality; r−g; Piketty; Second fundamental law of capitalism; Gini;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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