Do public sector wages moderate the impact of institutional strengthening on corruption?

PurposeThis study aims to examine whether public sector wage policy moderates the effect of institutional strengthening, particularly the rule of law, on corruption levels in developing countries.Design/methodology/approachThis study uses panel data from 42 developing countries covering the period 2016–2018. The analysis uses panel quantile regression to capture variations in the effects across different levels of corruption. The main variables include indicators of the rule of law (World Justice Project), the corruption perceptions index and the public sector wage premium. The model also tests the moderating effect of wages on the relationship between institutional strength and corruption.FindingsThe results indicate that institutional strengthening, particularly constraints on government power and regulatory enforcement, has a significant effect in reducing corruption at the middle and upper quantiles. In contrast, public sector wage policy does not exhibit a significant impact, either directly or as a moderating variable, in enhancing institutional strengthening to reduce corruption.Research limitations/implicationsAlthough this study reinforces the finding that wage policy does not moderate the effect of institutional strengthening in reducing corruption, it is important not to generalize these results to all “developing countries” as a homogeneous group. This is because there are research limitations, namely, it does not consider the complexity of institutional dynamics beyond the rule of law indicator, such as political, cultural and psychological structures that vary from one country to another; and it does not consider factors beyond wage premium indicators, such as benefit structures, career development or informal incentives. Therefore, future research is encouraged to expand the temporal scope, use more detailed data and consider qualitative approaches or case studies to better capture the normative, social and psychological factors that influence corruption within public bureaucracies.Practical implicationsThe findings of this study emphasize that wage increases without institutional reform are not effective enough in reducing corruption. Anti-corruption policies should focus on strengthening institutions, including limiting executive power, ensuring judicial independence and enforcing the law strictly and fairly, rather than just an economic approach (wage increases). In addition, one of the technical implications of this study’s findings is the potential implementation of invigilation by the government. Invigilation is a technique for applying significant controls to make fraud nearly impossible during a specific period.Social implicationsThis study suggests that societies in developing countries require a strong legal system and an accountable bureaucracy to reduce systemic corruption practices. Effective institutional reforms contribute to public trust, and enhanced social justice.Originality/valueThis study makes an original contribution by examining the moderating role of public sector wage policies in the relationship between the strength of government institutions and corruption levels using a panel quantile regression approach. This distributional approach uncovers deeper dynamics at various levels of corruption. The study also integrates three key elements − the rules of law, wage policies and corruption − into a single analytical framework, offering new empirical insights for the formulation of context-based anti-corruption policies. In addition, the study introduces a novel empirical dimension by integrating specific components of the rule of law − such as constraints on government power, regulatory enforcement and open government − into the analysis of public sector wages and corruption. This combination has rarely been explored in prior studies, particularly in the context of developing countries.