Admission is Free Only If Your Dad is Rich! Distributional Effects of Corruption in Schools in Developing Countries

54 Pages Posted: 10 Feb 2013 Last revised: 18 Mar 2013

See all articles by M. Shahe Emran

M. Shahe Emran

George Washington University - Department of Economics

Asad Islam

Monash University - Department of Economics

Forhad Shilpi

World Bank - Development Research Group (DECRG)

Multiple version iconThere are 2 versions of this paper

Date Written: February 10, 2013

Abstract

This paper provides an analysis of potential unequal burden of bribery in schools on poor households in developing countries. The rich are more likely to pay bribes in the standard model where the probability of punishment for bribe taking by a teacher is the same irrespective of income of the household. This model is, however, not appropriate in the context of a developing country lacking in rule of law, where the ability to punish a corrupt teacher depends on a household's economic status. Bribery is likely to be regressive at the extensive margin in this case. The conditions required for progressivity at the intensive margin are also quite stringent. A significant part of the available empirical evidence, however, finds bribes in developing countries to be progressive, thus contradicting the theoretical predictions above. We argue that this conflict may largely be due to the identification challenges arising from ability and preference heterogeneity. Using ten year average rainfall variations as instrument for household income in rural Bangladesh, we find that corruption is doubly regressive: (i) the poor are more likely to pay bribes (income elasticity [-0.73, -1]), and (ii) among the bribe payers, the poor pay a higher share of their income. The IV results for intensive margin are in contrast to the OLS estimate that shows bribes to be increasing with household income, substantiating the worry about spurious progressive effects. The results imply that `free schooling' is free only for the rich, and corruption makes the playing field skewed against the poor.

Keywords: Corruption, Bribes, Education, Schools, Inequality, Income Effect, Bargaining Power, Regressive Effects.

JEL Classification: O15, O12, K42, I2

Suggested Citation

Emran, M. Shahe and Islam, Asadul and Shilpi, Forhad, Admission is Free Only If Your Dad is Rich! Distributional Effects of Corruption in Schools in Developing Countries (February 10, 2013). Available at SSRN: https://ssrn.com/abstract=2214550 or http://dx.doi.org/10.2139/ssrn.2214550

M. Shahe Emran (Contact Author)

George Washington University - Department of Economics ( email )

2115 G Street NW
302 Monroe Hall
Washington, DC 20052
United States

Asadul Islam

Monash University - Department of Economics ( email )

Department of Economics
Monash University
Caulfield East, Victoria
Australia
+61399032783 (Phone)

HOME PAGE: http://users.monash.edu/~asaduli/

Forhad Shilpi

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States
202-458-7476 (Phone)
202-522-1151 (Fax)

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