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Effects of Public Sector Wages on Corruption : Wage Inequality Matters

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  • Demirguc-Kunt,Asli
  • Lokshin,Michael M.
  • Kolchin,Vladimir

Abstract

The paper uses a new country-level, panel data set to study the effect of public sector wages on corruption. The results show that wage inequality in the public sector is an important determinant of the effectiveness of anti-corruption policies. Increasing the wages of public officials could help reduce corruption in countries with low public sector wage inequality. In countries where public sector wages are highly unequal, however, raising the wages of government employees could increase corruption. These results are robust to a wide range of empirical model specifications, estimation methods, and distributional assumptions. The relation persists when controlling for latent omitted variables, using the share of contracts in the private sector as an instrument for the public-private wage differential. Combining increases in public sector wages with policies affecting the wage distribution could help policy makers design cost-effective programs to reduce corruption in their countries.

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  • Demirguc-Kunt,Asli & Lokshin,Michael M. & Kolchin,Vladimir, 2021. "Effects of Public Sector Wages on Corruption : Wage Inequality Matters," Policy Research Working Paper Series 9643, The World Bank.
    • Handle: RePEc:wbk:wbrwps:9643
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    More about this item

    Keywords

    De Facto Governments; Democratic Government; Public Sector Administrative&Civil Service Reform; Administrative&Civil Service Reform; Public Sector Administrative and Civil Service Reform; Labor Markets; Social Policy; Judicial System Reform; Public Sector Economics; Government Policies; National Governance; Legal Products; Regulatory Regimes; Public Finance Decentralization andPoverty Reduction; Youth and Governance; Legal Reform; Legislation; Educational Sciences;
    All these keywords.

    JEL classification:

    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption

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