The Relationship between Corruption and Income Inequality: A Cross-national Study

Abstract

This paper analyzes the relationship between income inequality levels and corruption levels. The hypothesis of the paper is that income inequality levels are positively correlated with corruption levels, and is based upon theoretical arguments on incentive structures specific to high-inequality societies. The paper proposes OLS estimation and 2SLS regression models for data analysis, using Transparency International's Corruptions Perceptions Index and the World Bank's Control of Corruption Index as measures of corruption, Gini coefficients as measures of income inequality, and includes additional economic, political and cultural factors. Regression analysis results on the sample of 126 countries support the hypothesis of a positive correlation between income inequality and corruption. The results suggest that redistributive measures to mitigate income inequality may curb the negative economic effects of corruption.