[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/9643.html
   My bibliography  Save this paper

Effects of Public Sector Wages on Corruption : Wage Inequality Matters

Author

Listed:
  • Demirguc-Kunt,Asli
  • Lokshin,Michael M.
  • Kolchin,Vladimir
Abstract
The paper uses a new country-level, panel data set to study the effect of public sector wages on corruption. The results show that wage inequality in the public sector is an important determinant of the effectiveness of anti-corruption policies. Increasing the wages of public officials could help reduce corruption in countries with low public sector wage inequality. In countries where public sector wages are highly unequal, however, raising the wages of government employees could increase corruption. These results are robust to a wide range of empirical model specifications, estimation methods, and distributional assumptions. The relation persists when controlling for latent omitted variables, using the share of contracts in the private sector as an instrument for the public-private wage differential. Combining increases in public sector wages with policies affecting the wage distribution could help policy makers design cost-effective programs to reduce corruption in their countries.

Suggested Citation

  • Demirguc-Kunt,Asli & Lokshin,Michael M. & Kolchin,Vladimir, 2021. "Effects of Public Sector Wages on Corruption : Wage Inequality Matters," Policy Research Working Paper Series 9643, The World Bank.
    • Handle: RePEc:wbk:wbrwps:9643
    as

    Download full text from publisher

    File URL: http://documents.worldbank.org/curated/en/387481619624669061/pdf/Effects-of-Public-Sector-Wages-on-Corruption-Wage-Inequality-Matters.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Khurrum S. Mughal & Friedrich G. Schneider, 2020. "How Informal Sector Affects the Formal Economy in Pakistan? A Lesson for Developing Countries," South Asian Journal of Macroeconomics and Public Finance, , vol. 9(1), pages 7-21, June.
    2. Gans-Morse, Jordan & Borges, Mariana & Makarin, Alexey & Mannah-Blankson, Theresa & Nickow, Andre & Zhang, Dong, 2018. "Reducing bureaucratic corruption: Interdisciplinary perspectives on what works," World Development, Elsevier, vol. 105(C), pages 171-188.
    3. Borcan, Oana & Lindahl, Mikael & Mitrut, Andreea, 2014. "The impact of an unexpected wage cut on corruption: Evidence from a “Xeroxed” exam," Journal of Public Economics, Elsevier, vol. 120(C), pages 32-47.
    4. Dani Rodrik, 1999. "Democracies Pay Higher Wages," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(3), pages 707-738.
    5. Arellano, Manuel, 1993. "On the testing of correlated effects with panel data," Journal of Econometrics, Elsevier, vol. 59(1-2), pages 87-97, September.
    6. Daniel Kaufmann & Aart Kraay & Massimo Mastruzzi, 2006. "Measuring Governance Using Cross-Country Perceptions Data," Chapters, in: Susan Rose-Ackerman (ed.), International Handbook on the Economics of Corruption, chapter 2, Edward Elgar Publishing.
    7. , Caroline, 2020. "130118074_caroline_ Kp A_uas Strategi Internasional," OSF Preprints s7k8h, Center for Open Science.
    8. Rauch, James E. & Evans, Peter B., 2000. "Bureaucratic structure and bureaucratic performance in less developed countries," Journal of Public Economics, Elsevier, vol. 75(1), pages 49-71, January.
    9. Daniel Kaufmann & Aart Kraay, 2002. "Growth without Governance," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2002), pages 169-230, August.
    10. Jacob A. Mincer, 1974. "Introduction to "Schooling, Experience, and Earnings"," NBER Chapters, in: Schooling, Experience, and Earnings, pages 1-4, National Bureau of Economic Research, Inc.
    11. Gary S. Becker & George J. Stigler, 1974. "Law Enforcement, Malfeasance, and Compensation of Enforcers," The Journal of Legal Studies, University of Chicago Press, vol. 3(1), pages 1-18, January.
    12. Leandro Medina & Friedrich Schneider, 2019. "Shedding Light on the Shadow Economy: A Global Database and the Interaction with the Official One," CESifo Working Paper Series 7981, CESifo.
    13. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 38(2), pages 112-134.
    14. Anja Hülsewig, 2009. "Measuring Corruption: A Comparison between the Transparency International's Corruption Perceptions Index and the World Bank's Worldwide Governance Indicators," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 7(3), pages 42-52, October.
    15. Andrés Blanco & Bernardo Diaz de Astarloa & Andres Drenik & Christian Moser & Danilo R. Trupkin, 2022. "The evolution of the earnings distribution in a volatile economy: Evidence from Argentina," Quantitative Economics, Econometric Society, vol. 13(4), pages 1361-1403, November.
    16. Axel Dreher & Friedrich Schneider, 2010. "Corruption and the shadow economy: an empirical analysis," Public Choice, Springer, vol. 144(1), pages 215-238, July.
    17. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1.
    18. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-963, September.
    19. Doruk İriş & Sungwoo Im, & Hyeonggyun Ko, 2020. "Subjective Beliefs in International Agreements," Working Papers 2010, Nam Duck-Woo Economic Research Institute, Sogang University (Former Research Institute for Market Economy).
    20. Treisman, Daniel, 2000. "The causes of corruption: a cross-national study," Journal of Public Economics, Elsevier, vol. 76(3), pages 399-457, June.
    21. Luis A. Sosa, 2004. "Wages and Other Determinants of Corruption," Review of Development Economics, Wiley Blackwell, vol. 8(4), pages 597-605, November.
    22. Gorodnichenko, Yuriy & Sabirianova Peter, Klara, 2007. "Public sector pay and corruption: Measuring bribery from micro data," Journal of Public Economics, Elsevier, vol. 91(5-6), pages 963-991, June.
    23. Knack, Stephen, 2007. "Measuring Corruption: A Critique of Indicators in Eastern Europe and Central Asia," Journal of Public Policy, Cambridge University Press, vol. 27(3), pages 255-291, December.
    24. Ugo Panizza, 2001. "Public Sector Wages and Bureaucratic Quality: Evidence from Latin America," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2001), pages 97-152, August.
    25. George J. Borjas, 2002. "The Wage Structure and the Sorting of Workers into the Public Sector," NBER Working Papers 9313, National Bureau of Economic Research, Inc.
    26. Benczúr, Péter & Kátay, Gábor & Kiss, Áron, 2018. "Assessing the economic and social impact of tax and benefit reforms: A general-equilibrium microsimulation approach applied to Hungary," Economic Modelling, Elsevier, vol. 75(C), pages 441-457.
    27. Hospido, Laura & Moral-Benito, Enrique, 2016. "The public sector wage premium in Spain: Evidence from longitudinal administrative data," Labour Economics, Elsevier, vol. 42(C), pages 101-122.
    28. Filipe Almeida‐Santos & Karen Mumford, 2005. "Employee Training And Wage Compression In Britain," Manchester School, University of Manchester, vol. 73(3), pages 321-342, June.
    29. Di Tella, Rafael & Schargrodsky, Ernesto, 2003. "The Role of Wages and Auditing during a Crackdown on Corruption in the City of Buenos Aires," Journal of Law and Economics, University of Chicago Press, vol. 46(1), pages 269-292, April.
    30. Fredrik Heyman, 2008. "How Wage Compression Affects Job Turnover," Journal of Labor Research, Springer, vol. 29(1), pages 11-26, March.
    31. Mohamed A.K. Basuony & Ehab K.A. Mohamed & Ahmed Elragal & Khaled Hussainey, 2020. "Big data analytics of corporate internet disclosures," Accounting Research Journal, Emerald Group Publishing Limited, vol. 35(1), pages 4-20, May.
    32. Besley, Timothy & McLaren, John, 1993. "Taxes and Bribery: The Role of Wage Incentives," Economic Journal, Royal Economic Society, vol. 103(416), pages 119-141, January.
    33. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, April.
    34. Gindling, T.H. & Hasnain, Zahid & Newhouse, David & Shi, Rong, 2020. "Are public sector workers in developing countries overpaid? Evidence from a new global dataset," World Development, Elsevier, vol. 126(C).
    35. Benjamin A. Olken & Rohini Pande, 2012. "Corruption in Developing Countries," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 479-509, July.
    36. Raymond Fisman & Edward Miguel, 2007. "Corruption, Norms, and Legal Enforcement: Evidence from Diplomatic Parking Tickets," Journal of Political Economy, University of Chicago Press, vol. 115(6), pages 1020-1048, December.
    37. Van-Ha Le & Jakob de Haan & Erik Dietzenbacher & Jakob de Haan, 2013. "Do Higher Government Wages Reduce Corruption? Evidence Based on a Novel Dataset," CESifo Working Paper Series 4254, CESifo.
    38. James E. Alt & David Dreyer Lassen, 2014. "Enforcement and Public Corruption: Evidence from the American States," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 30(2), pages 306-338.
    39. Schiavo-Campo, Salvatore & de Tommaso, Giulio & Mukh, 1997. "An international statistical survey of government employment and wages," Policy Research Working Paper Series 1806, The World Bank.
    40. Jean‐Jacques Laffont & David Martimort, 1997. "The Firm as a Multicontract Organization," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(2), pages 201-234, June.
    41. Paolo Ghinetti & Claudio Lucifora, 2013. "Public‐private wage gaps and skill levels: evidence from French, British and Italian micro data," International Journal of Manpower, Emerald Group Publishing Limited, vol. 34(5), pages 429-446, August.
    42. An, Weihua & Kweon, Yesola, 2017. "Do higher government wages induce less corruption? Cross-country panel evidence," Journal of Policy Modeling, Elsevier, vol. 39(5), pages 809-826.
    43. Kristyna Chabova, 2017. "Erratum to: Measuring corruption in Europe: public opinion surveys and composite indices," Quality & Quantity: International Journal of Methodology, Springer, vol. 51(4), pages 1901-1901, July.
    44. Marcelo Nicolas Claure Ramirez & Alejandra Leyton & Christian Valencia & Karenth Vanessa Sanchez Bohrquez & Jorge Davalos, 2017. "Evidence of the Impacts of Minimum Wage on Labor Market Outcomes: The Case of Bolivia," Working Papers PMMA 2017-10, PEP-PMMA.
    45. Nasr G. Elbahnasawy & Charles F. Revier, 2012. "The Determinants of Corruption: Cross-Country-Panel-Data Analysis," The Developing Economies, Institute of Developing Economies, vol. 50(4), pages 311-333, December.
    46. Abbink, Klaus, 2004. "Staff rotation as an anti-corruption policy: an experimental study," European Journal of Political Economy, Elsevier, vol. 20(4), pages 887-906, November.
    47. Mizala, Alejandra & Romaguera, Pilar & Gallegos, Sebastián, 2011. "Public–private wage gap in Latin America (1992–2007): A matching approach," Labour Economics, Elsevier, vol. 18(S1), pages 115-131.
    48. Veland Ramadani & Esra Memili & Ramo Palalić & Erick P. C. Chang, 2020. "Internationalization of Family Businesses," Springer Texts in Business and Economics, in: Entrepreneurial Family Businesses, chapter 9, pages 153-179, Springer.
    49. Kristyna Chabova, 2017. "Measuring corruption in Europe: public opinion surveys and composite indices," Quality & Quantity: International Journal of Methodology, Springer, vol. 51(4), pages 1877-1900, July.
    50. Rajeev Goel & Daniel Rich, 1989. "On the economic incentives for taking bribes," Public Choice, Springer, vol. 61(3), pages 269-275, June.
    51. Van Ha Le & Jakob De Haan & Erik Dietzenbacher, 2018. "Industry Wages Across Countries and Over Time: A New Database of Micro Survey Data," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 64(1), pages 1-25, March.
    52. Alberto Ades & Rafael Di Tella, 1997. "The New Economics of Corruption: a Survey and Some New Results," Political Studies, Political Studies Association, vol. 45(3), pages 496-515, August.
    53. Albornoz, Facundo & Cabrales, Antonio, 2013. "Decentralization, political competition and corruption," Journal of Development Economics, Elsevier, vol. 105(C), pages 103-111.
    54. Sebastian Barfort & Nikolaj A. Harmon & Frederik Hjorth & Asmus Leth Olsen, 2019. "Sustaining Honesty in Public Service: The Role of Selection," American Economic Journal: Economic Policy, American Economic Association, vol. 11(4), pages 96-123, November.
    55. Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(3), pages 681-712.
    56. Khemani,Stuti, 2019. "What Is State Capacity ?," Policy Research Working Paper Series 8734, The World Bank.
    57. Mishra, Prachi & Subramanian, Arvind & Topalova, Petia, 2008. "Tariffs, enforcement, and customs evasion: Evidence from India," Journal of Public Economics, Elsevier, vol. 92(10-11), pages 1907-1925, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jiancai Pi & Shuxi Duan, 2023. "Appropriation, migration, and unemployment," Australian Economic Papers, Wiley Blackwell, vol. 62(3), pages 430-456, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Roberto Burguet & Juan-José Ganuza & José García-Montalvo, 2016. "The Microeconomics of Corruption. A Review of Thirty Years of Research," Working Papers 908, Barcelona School of Economics.
    2. Gans-Morse, Jordan & Borges, Mariana & Makarin, Alexey & Mannah-Blankson, Theresa & Nickow, Andre & Zhang, Dong, 2018. "Reducing bureaucratic corruption: Interdisciplinary perspectives on what works," World Development, Elsevier, vol. 105(C), pages 171-188.
    3. Van-Ha Le & Jakob de Haan & Erik Dietzenbacher & Jakob de Haan, 2013. "Do Higher Government Wages Reduce Corruption? Evidence Based on a Novel Dataset," CESifo Working Paper Series 4254, CESifo.
    4. Eugen Dimant & Guglielmo Tosato, 2018. "Causes And Effects Of Corruption: What Has Past Decade'S Empirical Research Taught Us? A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 32(2), pages 335-356, April.
    5. Günther G. Schulze & Bambang Suharnoko Sjahrir & Nikita Zakharov, 2016. "Corruption in Russia," Journal of Law and Economics, University of Chicago Press, vol. 59(1), pages 135-171.
    6. van Veldhuizen, R., 2013. "The influence of wages on public officials’ corruptibility: A laboratory investigation," Journal of Economic Psychology, Elsevier, vol. 39(C), pages 341-356.
    7. Chen, Yanting & Liu, Qijun, 2018. "Public-sector wages and corruption: An empirical study," European Journal of Political Economy, Elsevier, vol. 54(C), pages 189-197.
    8. Schumacher, Ingmar, 2013. "Political stability, corruption and trust in politicians," Economic Modelling, Elsevier, vol. 31(C), pages 359-369.
    9. Olivier Armantier & Amadou Boly, 2008. "Can Corruption Be Studied in the Lab? Comparing a Field and a Lab Experiment," CIRANO Working Papers 2008s-26, CIRANO.
    10. Nicolas Jacquemet, 2005. "La corruption comme une imbrication de contrats : Une revue de la littérature microéconomique," Working Papers 2005-29, Center for Research in Economics and Statistics.
    11. Wadho, Waqar Ahmed, 2009. "Steal If You Need. Capitulation Wages with Endogenous Monitoring," MPRA Paper 37839, University Library of Munich, Germany.
    12. Abhijit Banerjee & Rema Hanna, 2012. "Corruption [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
      • Hanna, Rema N. & Mullainathan, Sendhil & Banerjee, Abhijit, 2012. "Corruption," Scholarly Articles 8830779, Harvard Kennedy School of Government.
      • Banerjee, Abhijit & Hanna, Rema & Mullainathan, Sendhil, 2012. "Corruption," Working Paper Series rwp12-023, Harvard University, John F. Kennedy School of Government.
      • Abhijit Banerjee & Rema Hanna & Sendhil Mullainathan, 2012. "Corruption," Working Papers id:4952, eSocialSciences.
      • Abhijit Banerjee & Sendhil Mullainathan & Rema Hanna, 2012. "Corruption," NBER Working Papers 17968, National Bureau of Economic Research, Inc.
    13. Jakob Svensson, 2005. "Eight Questions about Corruption," Journal of Economic Perspectives, American Economic Association, vol. 19(3), pages 19-42, Summer.
    14. Soraperra, Ivan & Köbis, Nils & Shalvi, Shaul & Vogt, Sonja & Efferson, Charles & Offerman, Theo, 2023. "A market for integrity. The use of competition to reduce bribery in education," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 107(C).
    15. Van Rijckeghem, Caroline & Weder, Beatrice, 2001. "Bureaucratic corruption and the rate of temptation: do wages in the civil service affect corruption, and by how much?," Journal of Development Economics, Elsevier, vol. 65(2), pages 307-331, August.
    16. Tugrul Gurgur & Anwar Shah, 2014. "Localization and corruption: panacea or pandora's box?," Annals of Economics and Finance, Society for AEF, vol. 15(1), pages 109-136, May.
    17. Jakob Svensson, 2006. "Osiem pytań na temat korupcji," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 9, pages 77-106.
    18. Blackburn, Keith & Forgues-Puccio, Gonzalo F., 2009. "Why is corruption less harmful in some countries than in others?," Journal of Economic Behavior & Organization, Elsevier, vol. 72(3), pages 797-810, December.
    19. Auriol, Emmanuelle & Straub, Stéphane & Flochel, Thomas, 2016. "Public Procurement and Rent-Seeking: The Case of Paraguay," World Development, Elsevier, vol. 77(C), pages 395-407.
    20. Keith Blackburn & Niloy Bose & M. Emranul Haque, 2011. "Public Expenditures, Bureaucratic Corruption And Economic Development," Manchester School, University of Manchester, vol. 79(3), pages 405-428, June.

    More about this item

    Keywords

    De Facto Governments; Democratic Government; Public Sector Administrative&Civil Service Reform; Administrative&Civil Service Reform; Public Sector Administrative and Civil Service Reform; Labor Markets; Social Policy; Judicial System Reform; Public Sector Economics; Government Policies; National Governance; Legal Products; Regulatory Regimes; Public Finance Decentralization andPoverty Reduction; Youth and Governance; Legal Reform; Legislation; Educational Sciences;
    All these keywords.

    JEL classification:

    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:9643. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Roula I. Yazigi (email available below). General contact details of provider: https://edirc.repec.org/data/dvewbus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.