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Effects of Public Sector Wages on Corruption: Wage Inequality Matters

Author

Listed:
  • Asli Demirgüç-Kunt

    (Center for Global Development)

  • Michael Lokshin

    (World Bank)

  • Vladimir Kolchin

    (World Bank)

Abstract
The paper uses a new country-level, panel data set to study the effect of public sector wages on corruption. The results show that wage inequality in the public sector is an important determinant of the effectiveness of anti-corruption policies. Increasing the wages of public officials could help reduce corruption in countries with low public sector wage inequality. In countries where public sector wages are highly unequal, however, raising the wages of government employees could increase corruption. These results are robust to a wide range of empirical model specifications, estimation methods, and distributional assumptions. Combining increases in public sector wages with policies affecting wage distribution could help policy makers design cost-effective programs to reduce corruption in their countries.

Suggested Citation

  • Asli Demirgüç-Kunt & Michael Lokshin & Vladimir Kolchin, 2023. "Effects of Public Sector Wages on Corruption: Wage Inequality Matters," Working Papers 644, Center for Global Development.
    • Handle: RePEc:cgd:wpaper:644
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    More about this item

    Keywords

    Corruption; bureaucracy; panel data analysis; public-private wage differential; government wage policy;
    All these keywords.

    JEL classification:

    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption

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