Economic Inequality and the Quality of Government

56 Pages Posted: 24 Oct 2005

See all articles by Eric M. Uslaner

Eric M. Uslaner

University of Maryland, College Park; Institute for Corruption Studies

Date Written: July 2, 2005

Abstract

Corruption is generally considered to be a curse. It flouts rules of fairness and gives some people advantages that others don't have. Corruption transfers resources from the mass public to the elites - and generally from the poor to the rich (Tanzi, 1998). It acts as an extra tax on citizens, leaving less money for public expenditures (Mauro, 1997, 7). Corrupt governments have less money to spend on their own projects, pushing down the salaries of public employees. In turn, these lower-level staffers will be more likely to extort funds from the public purse. Government employees in corrupt societies will thus spend more time lining their own pockets than serving the public. Corruption thus leads to lower levels of economic growth and to ineffective government.

Economic inequality provides a fertile breeding ground for corruption - and, in turn, it leads to further inequalities. Most of the models of corruption focus on the institutional determinants of government dishonesty. However, such accounts are problematic. Corruption is remarkably sticky over time. There is a very powerful correlation between cross-national measures corruption in 1980 and in 2004. In contrast, measures of democracy such as the Freedom House scores are not so strongly correlated over time - and changes in corruption are unrelated to changes in institutional design. On the other hand, inequality and trust-like corruption - are also sticky over time.

The connection between inequality and the quality of government is not necessarily so simple: As the former Communist nations of Central and Eastern Europe show, you can have plenty of corruption without economic inequality. The aggregate relationships between inequality and corruption are not strong. The path from inequality to corruption may be indirect - through generalized trust - but the connection is key to understanding why some societies are more corrupt than others.

I estimate a set of simultaneous equations cross-nationally and show that there is strong support for the linkage from high inequality to low generalized trust to high levels of corruption - and then back to higher levels of inequality, leading to an inequality trap. I also show more direct connections between a more nuanced measure of inequality (the ratio of black to white/poverty ratio in the American states, together with trust, and reporters' perceptions of corruption in the American states. I also show indirectly that corruption has a long historical legacy in the United States.

Keywords: trust, corruption, inequality, government

Suggested Citation

Uslaner, Eric M., Economic Inequality and the Quality of Government (July 2, 2005). Available at SSRN: https://ssrn.com/abstract=824466 or http://dx.doi.org/10.2139/ssrn.824466

Eric M. Uslaner (Contact Author)

University of Maryland, College Park ( email )

College Park, MD 20742
United States
+1301 405 4151 (Phone)
+1301 314 9690 (Fax)

Institute for Corruption Studies

Stevenson Hall 425
Normal, IL 61790-4200
United States

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