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Inequality and Corruption

Author

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  • You, Jong-Sung

    (Harvard U)

  • Khagram, Sanjeev

    (Harvard U)

Abstract

We propose that income inequality increases corruption. The rich are likely to both have greater motivation and opportunities to engage in bribery and fraud as one means to preserve and advance their status, privileges, and interests while the poor are more vulnerable to extortion at higher levels of inequality. While countries with authoritarian regimes are likely to have greater levels of corruption on average, the effect of greater inequality on corruption will be higher in democracies, in which the wealthy cannot employ repression and poorer groups are likely to more effectively demand redistribution. Both OLS estimates (for samples of 95 to 122 countries) and IV 2SLS estimates (for samples of 83 to 103 countries) support our arguments, with 2SLS estimates showing stronger statistically significant effects of inequality on corruption, utilizing Transparency International's Corruption Perceptions Index, the World Bank's Control of Corruption Index (average for 1996-2002) and Dollar and Kraay's income inequality data (average Gini for 1950-1999). Surprisingly, the explanatory power of inequality is substantially no less important than conventionally accepted causes of corruption such as economic development. Contrary to conventional wisdom, smaller and not larger government is associated with higher levels of corruption, because higher inequality through corruption is associated with lower tax rates as well as lower government transfers and subsidies.

Suggested Citation

  • You, Jong-Sung & Khagram, Sanjeev, 2004. "Inequality and Corruption," Working Paper Series rwp04-001, Harvard University, John F. Kennedy School of Government.
  • Handle: RePEc:ecl:harjfk:rwp04-001
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    File URL: https://research.hks.harvard.edu/publications/getFile.aspx?Id=106
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    Cited by:

    1. Mohseni-Cheraghlou, Amin, 2016. "The Aftermath of Financial Crises: A Look on Human and Social Wellbeing," World Development, Elsevier, vol. 87(C), pages 88-106.
    2. Balcazar Salazar,Carlos Felipe, 2015. "Long-run effects of democracy on income inequality : evidence from repeated cross-sections," Policy Research Working Paper Series 7153, The World Bank.
    3. us Swaleheen, Mushfiq, 2008. "Corruption and saving in a panel of countries," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 1285-1301, September.

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