Original Papers

Economics of Governance

, Volume 3, Issue 1, pp 23-45

Does corruption affect income inequality and poverty?

  • Sanjeev GuptaAffiliated withInternational Monetary Fund, 700 19th Street North West, Washington, DC, 20431, USA (e-mail: sgupta@imf.org)
  • , Hamid DavoodiAffiliated withInternational Monetary Fund, 700 19th Street North West, Washington, DC, 20431, USA (e-mail: sgupta@imf.org)
  • , Rosa Alonso-TermeAffiliated withThe World Bank, 1818 H Street N.W, Room J4-146, Washington DC, 20433 USA

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Abstract.

This paper provides evidence that high and rising corruption increases income inequality and poverty. An increase of one standard deviation in corruption increases the Gini coefficient of income inequality by about 11 points and income growth of the poor by about 5 percentage points per year. These findings are robust to use of different instruments for corruption and other sensitivity analyses. The paper discusses several channels through which corruption may affect income inequality and poverty. An important implication of these findings is that policies that reduce corruption will most likely reduce income inequality and poverty as well.

Key words: Corruption, income inequality, poverty
JEL Classification: D73, D31, I32