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Corruption causes inequality, or is it the other way around? An empirical investigation for a panel of countries

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  • Policardo, Laura
  • Carrera, Edgar J. Sánchez
Abstract
In past decades, a relevant strand of literature has found corruption to be an important determinant of income inequality. In this paper, it is argued that a reverse causal relationship between corruption and income inequality might exist. We claim that income inequality could in fact be responsible for fostering corruption, which may be a reaction to a perceived unfair income distribution. Looking at a panel of 50 countries from 1995–2015, we show that the direction of causality between corruption and income inequality is country-specific and may be bidirectional. Using a dynamic GMM model, we robustly find that income inequality positively affects corruption, while corruption does not appear to be significant in the determination of income inequality, therefore contradicting the existing empirical literature on this topic.

Suggested Citation

  • Policardo, Laura & Carrera, Edgar J. Sánchez, 2018. "Corruption causes inequality, or is it the other way around? An empirical investigation for a panel of countries," Economic Analysis and Policy, Elsevier, vol. 59(C), pages 92-102.
    • Handle: RePEc:eee:ecanpo:v:59:y:2018:i:c:p:92-102
    DOI: 10.1016/j.eap.2018.05.001
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    More about this item

    Keywords

    Corruption perception; Dynamic panel; Income inequality; Causality;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D30 - Microeconomics - - Distribution - - - General
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies

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