The Effect of Democracy on Corruption: Income is Key

Michael Jetter, Alejandra Montoya Agudelo and Andrés Ramírez Hassan ()

World Development, 2015, vol. 74, issue C, 286-304

Abstract: This paper provides an explanation for the ambiguous relationship between democracy and corruption. Using rich panel data with annual observations from 1998 to 2012 allows us to control not only for country- and time-invariant factors but also for potential reverse causality between corruption and income levels in a 3SLS framework. Democracy reduces corruption but only in economies that have already crossed a GDP/capita level of approximately US$2,000 (in 2005 US$). For poorer nations, democratization is suggested to increase corruption. Other institutional characteristics are unlikely to drive this result and findings are robust to a variety of robustness checks and quantile regressions.

Keywords: corruption; democracy; income levels; panel data; regime type (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (44)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:wdevel:v:74:y:2015:i:c:p:286-304

DOI: 10.1016/j.worlddev.2015.05.016

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