Does Inequality Foster Corruption?

Authors


  • We would like to thank an associate editor and an anonymous referee of this journal for comments. We are also grateful to Jens Andvig, Abhijit Banerjee, Kaushik Basu, Maitreesh Ghatak, Dilip Mookherjee, Ashok Parikh, Gurleen Popli, and seminar participants at CMI, Bergen, and UEA for comments and discussions. Financial assistance under the Poverty, Inequality, and Development (PID) program at Cornell University is acknowledged by the second author.

Abstract

In this paper, we investigate how inequality affects corruption in the presence of an imperfect credit market. We favor an explanation based on a multimarket framework where corruption in one market (or sector) arises because of imperfections exacerbated by inequality in related markets. We demonstrate that even when an individual's ability to pay bribes and benefit from engaging in corruption are not affected by wealth level, greater (wealth) inequality will lead to an increase in corruption.

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