Corruption and the 'Paradox of Redistribution'

What is it about?

The existing literature on the determinants of income redistribution has identified a ‘paradox’. Namely, that countries with a high degree of market income inequality redistribute little, which is in disagreement with the median voter theorem. In a first step, this paper outlines several mechanisms that explain why government corruption might be partially responsible for this ‘paradox’. In a second step, different corruption perception indices and an instrumental variable approach are used to provide empirical evidence that indicates a significant negative impact of corruption on redistribution levels for a sample of 148 developing and developed countries.

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Why is it important?

To the best of our knowledge, this is the first empirical study that provides evidence of a negative relationship between the level of government corruption and the level of redistribution across countries. Our findings suggests that, next to political and need factors, government corruption explains to some extent why many countries with relatively high levels of market income inequality have relatively low levels of redistribution. Henceforth, citizens desiring higher levels of redistribution should consider demanding more effective anti-corruption policies and laws (especially in developing countries, given that they typically have relatively high degrees of corruption and low levels of redistribution).