Who benefits from corruption; the private individual or the public purse?

Abstract

In this paper, we examine the impact of corruption on wealth distribution between the public purse and private individuals conditioned on the institutional quality of a country. We used panel data on 83 countries from 2000 to 2017. Our results indicate that corruption helps private individuals to accumulate more wealth at the expense of the public purse in countries with low‐quality institutions. However, corruption increases the wealth in the public purse in countries with high‐quality institutions. Our results, therefore, imply that the institutional quality of a country significantly shapes how corruption affects the wealth of private individuals and the public purse. The results are pronounced in developing countries and robust to alternative measurements and endogeneity test.

Arab Spring, democratization of corruption, and income inequality

“…Although we control for many variables along with the country dummies to ensure that our results are unlikely to be driven by the omission of country‐specific fixed and variable factors, the possibility of reverse causality cannot be ruled out. Some recent studies have noted the issue of endogeneity in studying the association between corruption and income inequality (Policardo & Carrera, 2018; Tawiah et al, 2021). The concern here is bi‐directional causality – not only does corruption affect income inequality, but income inequality also impacts corruption.…”

“…Many studies have shown significant effects of political instability on other economic outcomes, such as financial inclusion (Alhassan et al, 2021), that can further be linked with income inequality. Similarly, Tawiah et al (2021) find that corruption's effects on wealth distribution between private individuals and the public purse depends on the country's institutional quality. To the extent that the Arab Spring led to a change in the institutional setup of the countries and corruption became more democratic, we hypothesize that the association between corruption and income inequality changed systematically after the uprisings.…”

“…It is well‐known that corruption and income inequality are correlated and feed into each other (Gupta et al, 2002; Tawiah et al, 2021; Uslaner, 2010). Besides the demand for democratic rights and political freedom, corruption, and income inequality are considered the most important reasons for the Arab uprisings that started in Tunisia in 2010 and spread to several MENA countries (Sapsford et al, 2019).…”

The ‘play’ of institutions and firm investment: Evidence from a transition economy

“…One of the most important informal governance forces is the degree to which local officials are free from corruption. Corruption is directly linked to property rights protection and enforcement of laws (Tawiah et al, 2023); these, as noted above, determine the expected and actual transaction costs of entrepreneurs' investment projects. Corruption is recognised to introduce substantial uncertainty into business development, dampening venture rate and company growth.…”