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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.

Suggested Citation

  • Stephen Dobson & Carlyn Ramlogan, 2009. "Is there a trade-off between income inequality and corruption? Evidence from Latin America," NBS Discussion Papers in Economics 2009/4, Economics, Nottingham Business School, Nottingham Trent University.
    • Handle: RePEc:nbs:wpaper:2009/4
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    References listed on IDEAS

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    More about this item

    Keywords

    corruption; Latin America; income inequality; instrumental variables; panel data.;
    All these keywords.

    JEL classification:

    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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