Control of Corruption and Luxury Goods Consumption

Reza Tajaddini and Hassan Gholipour Fereidouni

Kyklos, 2018, vol. 71, issue 4, 613-641

Abstract: This paper investigates the effect of control of corruption on the consumption of luxury goods, after controlling other relevant determinants of luxury spending. The model is empirically tested for 32 developed and emerging economies between 2004 and 2014. Using panel fixed effects, difference generalized method of moments (GMM) and instrumental variable estimation methods, and two measures of the control of corruption (Transparency International Corruption Perceptions Index and the World Bank's Control of Corruption Index), the results show that higher levels of control of corruption decrease luxury spending. This relationship is stronger in countries with higher levels of press freedom and information transparency. These findings offer some important implications. Governments and policymakers may develop and implement regulations that increase transparency in luxury gifting and limit corruption practices. Luxury brand companies should further enhance their due diligence obligations to minimise reputational risks in the long term.

Date: 2018
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