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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," Working Papers 2009/4, Nottingham Trent University, Nottingham Business School, Economics Division.
  • Handle: RePEc:nbs:wpaper:2009/4
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    References listed on IDEAS

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    1. Albanesi, Stefania, 2007. "Inflation and inequality," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1088-1114, May.
    2. Morley, Samuel A., 2000. "The effects of growth and economic reform on income distribution in Latin America," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), August.
    3. Kwabena Gyimah-Brempong, 2002. "Corruption, economic growth, and income inequality in Africa," Economics of Governance, Springer, vol. 3(3), pages 183-209, November.
    4. Mattias Lundberg & Lyn Squire, 2003. "The simultaneous evolution of growth and inequality," Economic Journal, Royal Economic Society, vol. 113(487), pages 326-344, April.
    5. Alesina, Alberto & Angeletos, George-Marios, 2005. "Corruption, inequality, and fairness," Journal of Monetary Economics, Elsevier, vol. 52(7), pages 1227-1244, October.
    6. Bourguignon, Francois & Morrisson, Christian, 1998. "Inequality and development: the role of dualism," Journal of Development Economics, Elsevier, vol. 57(2), pages 233-257.
    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. 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, March.
    9. Barro, Robert J, 2000. "Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
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    Cited by:

    1. Dimant, Eugen, 2014. "The Antecedents and Effects of Corruption - A Reassessment of Current (Empirical) Findings," MPRA Paper 60947, University Library of Munich, Germany.
    2. 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.
    3. Tomson Ogwang & Danny Cho, 2014. "A Conceptual Framework for Constructing a Corruption Diffusion Index," Journal of Business Ethics, Springer, vol. 125(1), pages 1-9, November.
    4. 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.
    5. Jiancai Pi & Yu Zhou, 2015. "The impacts of corruption on wage inequality and rural–urban migration in developing countries," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 54(3), pages 753-768, May.
    6. repec:spr:annopr:v:243:y:2016:i:1:d:10.1007_s10479-014-1567-9 is not listed on IDEAS
    7. Dobson, Stephen & Ramlogan-Dobson, Carlyn, 2012. "Inequality, corruption and the informal sector," Economics Letters, Elsevier, vol. 115(1), pages 104-107.

    More about this item

    Keywords

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

    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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