Is Corruption Really Bad for Inequality? Evidence from Latin America

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may Abstract:This paper presents new evidence on the relationship between corruption and income inequality. Using a panel data methodology, we find that lower corruption is associated with higher income inequality in Latin America. This result is in contrast to other empirical studies but it makes sense in Latin America for a number of reasons. The finding of an inverse relationship between inequality and corruption suggests that institutional reform policies by themselves may be misguided.

Have economic growth and institutional quality contributed to poverty and inequality reduction in Asia?

“…For instance, corruption can alter the composition of social spending to benefit the rich at the expense of the poor, leading to higher inequality [21]. In line with this argument, studies have found a positive relationship between institutions and income inequality.…”

“…Based on their results, inequality appears to reduce with further reductions in the level of corruption, but only when the corruption index exceeds 2.91 (a higher corruption index indicates lower corruption levels). Similarly, Andres and Ramlogan-Dobson [21] supported the notion that there could be a trade-off between corruption and income inequality in Latin America, with a lower level of corruption leading to higher income inequality.…”

“…Weak institutions can have a detrimental effect on inequality as well [19,15]. For example, the beneficiaries of tax evasion and tax exemptions (as a result of corruption) are most likely to be relatively wealthy, which means that almost the entire tax burden falls on the poor [21]. While most studies have examined institutional quality and its effect on poverty and income inequality for countries across several regions, empirical research on the Asian region is lacking.…”

“…However, Andres and Ramlogan-Dobson [21], Chong and Caldéron [14], and Li et al [45] claimed that there could be a trade-off between such improvements and income inequality in developing countries. System GMM estimation revealed that improvements in the levels of corruption, democratic accountability, and bureaucratic quality could lead to higher poverty levels (Section 4.2).…”

“…The authors explained that although the provision of some government projects may foster corruption, they would nevertheless help improve the welfare of the very poor. Additionally, even well-intentioned policy makers could hesitate to eliminate corrupt programmes as they may be the only means of improving the conditions of the poor [21].…”