Democracy, Property Rights, Income Equality, and Corruption

27 Pages Posted: 9 Feb 2011

See all articles by Bin Dong

Bin Dong

Queensland University of Technology

Benno Torgler

Queensland University of Technology; CREMA; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Date Written: February 7, 2011

Abstract

This paper presents theoretical and empirical evidence on the nexus between corruption and democracy. We establish a political economy model where the effect of democracy on corruption is conditional on income distribution and property rights protection. Our empirical analysis with cross-national panel data provides evidence that is consistent with the theoretical prediction. Moreover, the effect of democratization on corruption depends on the protection of property rights and income equality which shows that corruption is a nonlinear function of these variables. The results indicate that democracy will work better as a control of corruption if the property rights system works and there is a low level of income inequality. On the other hand if property rights are not secured and there is strong income inequality, democracy may even lead to an increase of corruption. In addition, property rights protection and the mitigation of income inequality contribute in a strong manner to the reduction of corruption.

Keywords: Corruption, Democracy, Income inequality, Property rights

JEL Classification: D73, H11, P16

Suggested Citation

Dong, Bin and Torgler, Benno, Democracy, Property Rights, Income Equality, and Corruption (February 7, 2011). FEEM Working Paper No. 8.2011. Available at SSRN: https://ssrn.com/abstract=1756816 or http://dx.doi.org/10.2139/ssrn.1756816

Bin Dong (Contact Author)

Queensland University of Technology ( email )

GPO Box 2434
2 George Street
Brisbane, Queensland 4001
Australia

Benno Torgler

Queensland University of Technology ( email )

GPO Box 2434
2 George Street
Brisbane, Queensland 4001
Australia

CREMA

Gellertstrasse 18
Basel
Zurich, CH 8006
Switzerland

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

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