Abstract
Using panel data on International Country Risk Guide (ICRG) corruption index, Gini index of income inequality and a number of state variables for 71 developed and developing countries, this paper explores empirical relationship between corruption and income distribution. The analysis based on Generalized Method of Moments (GMM) estimation shows that corruption significantly contributes to unequal income distribution and this result is robust with respect to alternative specification of the econometric relationship. A central message of corruption and income inequality relationship suggests that corruption has significant distributional implications and, given its negative efficiency implications, corruption should be considered as harmful to both growth and equity. Therefore, policies that reduce corruption will also improve income distribution.