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A Comparative Study of Inequality and Corruption

Jong-sung You

The Australian National University

Sanjeev Khagram

Harvard University - Harvard Kennedy School (HKS)

November 18, 2004

Hauser Center for Nonprofit Organizations Working Paper No. 22
KSG Working Paper No. RWP04-001

We propose that income inequality increases corruption. The rich are likely to both have greater motivation and opportunities to engage in bribery and fraud as one means to preserve and advance their status, privileges, and interests while the poor are more vulnerable to extortion at higher levels of inequality. While countries with authoritarian regimes are likely to have greater levels of corruption on average, the effect of greater inequality on corruption will be higher in democracies, in which the wealthy cannot employ repression and poorer groups are likely to more effectively demand redistribution. Both OLS estimates (for samples of 95 to 122 countries) and IV 2SLS estimates (for samples of 83 to 103 countries) support our arguments, with 2SLS estimates showing stronger statistically significant effects of inequality on corruption, utilizing Transparency International's Corruption Perceptions Index, the World Bank's Control of Corruption Index (average for 1996-2002) and Dollar and Kraay's income inequality data (average Gini for 1950-1999). Surprisingly, the explanatory power of inequality is substantially no less important than conventionally accepted causes of corruption such as economic development. Contrary to conventional wisdom, smaller and not larger government is associated with higher levels of corruption, because higher inequality through corruption is associated with lower tax rates as well as lower government transfers and subsidies.

Number of Pages in PDF File: 59

Keywords: International development, law and legal institutions

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Date posted: January 21, 2004 ; Last revised: October 27, 2014

Suggested Citation

You, Jong-sung and Khagram, Sanjeev, A Comparative Study of Inequality and Corruption (November 18, 2004). Hauser Center for Nonprofit Organizations Working Paper No. 22; KSG Working Paper No. RWP04-001. Available at SSRN: https://ssrn.com/abstract=489823 or http://dx.doi.org/10.2139/ssrn.489823

Contact Information

Jong-sung You (Contact Author)
The Australian National University ( email )
+61 2 6125 7097 (Phone)

Sanjeev Khagram
Harvard University - Harvard Kennedy School (HKS) ( email )
79 John F. Kennedy Street
Cambridge, MA 02138
United States
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