Inequality and Corruption: Evidence from US States

49 Pages Posted: 26 Aug 2008

See all articles by James E. Alt

James E. Alt

Harvard University - Department of Government

David Dreyer Lassen

University of Copenhagen - Department of Economics

Date Written: August 25, 2008

Abstract

High-quality data on state-level inequality and incomes, panel data on corruption convictions, and careful attention to the consequences of including or excluding fixed effects in the panel specification allow us to estimate the impact of income considerations on the decision to undertake corrupt acts. Following efficiency wage arguments, for a given institutional environment the corruptible employee's or official's decision to engage in corruption is affected by relative wages and expected tenure in the public sector, the probability of detection, the cost of fines and jail terms, and the degree of inequality, which indicate diminished prospects facing those convicted of corruption. In US states over 25 years we show that inequality and higher government relative wages significantly and robustly produce less corruption. This reverses other findings of a positive association between inequality and corruption, which we show arises from long-run joint causation by unobserved factors.

Keywords: corruption, rent seeking, inequality, Gini coefficient, efficiency wage, public sector wages

JEL Classification: D72, D73, P48

Suggested Citation

Alt, James E. and Lassen, David Dreyer, Inequality and Corruption: Evidence from US States (August 25, 2008). Available at SSRN: https://ssrn.com/abstract=1259151 or http://dx.doi.org/10.2139/ssrn.1259151

James E. Alt

Harvard University - Department of Government ( email )

1737 Cambridge Street
Cambridge, MA 02138
United States

David Dreyer Lassen (Contact Author)

University of Copenhagen - Department of Economics ( email )

Studiestraede 6
DK 1455 Copenhagen
Denmark
+45 3532 4412 (Phone)
+45 3532 4444 (Fax)

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