Income Inequality Dynamics: The Role of Corruption

This paper investigates the dynamics of income inequality in a panel of 19 countries over the period 1984-2012, focusing on the role of corruption. Applying a fixed-effects model to both the top income shares and the Gini coefficient, the results suggest that higher levels of corruption are associated with higher levels of income inequality. However, this result is not robust to all different regression specifications. Additionally, corruption and the level of financial development show to affect income inequality in a different way for Latin American countries, confirming previous empirical results that income inequality dynamics are different for this region. Finally, the effect of corruption on income inequality is dampened by increased levels of government spending.