Apr 20, 2012

Corruption causes inequality?

Dincer and Gunalp argue in a paper that corruption increases income inequality (Contemporary Economic Policy, April 2012). See a draft here (June 2008). They say:
Corruption is not a phenomenon peculiar to low-income countries. It is possible to find examples of corruption in high-income countries as well. In Germany, for example, corruption led to an increase in cost of about 20 to 30 percent during the construction of terminal 2 at Frankfort Airport. In Italy, the cost of major construction projects fell significantly in the aftermath of corruption investigations in the early 1990s (Rose- Ackerman 1999). It is not a new phenomenon either. Prior to the New Deal, welfare programs in the U.S. were administered by local governments which were almost always associated with corruption. In 1933, when unemployment reached 25 percent, the federal government introduced welfare programs which redistributed 4 percent of the gross national product to millions of families. Knowing that he would incur enormous losses if the New Deal were perceived as corrupt, President Roosevelt took the fight against corruption in the administration of welfare programs very seriously by establishing offices to investigate complaints of corruption which led to vigorous prosecution of corrupt government officers (Wallis, Fishback, and Kantor 2006).
The name of the paper is "Corruption and income inequality in the United States."   

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