Effects of Public Sector Wages on Corruption: Wage Inequality Matters

Asli Demirguc-Kunt, Michael Lokshin and Vladimir Kolchin

No 9643, Policy Research Working Paper Series from The 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. The relation persists when controlling for latent omitted variables, using the share of contracts in the private sector as an instrument for the public-private wage differential. Combining increases in public sector wages with policies affecting the wage distribution could help policy makers design cost-effective programs to reduce corruption in their countries.

Keywords: De Facto Governments; Democratic Government; Public Sector Administrative&Civil Service Reform; Administrative&Civil Service Reform; Public Sector Administrative and Civil Service Reform; Labor Markets; Social Policy; Judicial System Reform; Public Sector Economics; Government Policies; National Governance; Legal Products; Regulatory Regimes; Public Finance Decentralization andPoverty Reduction; Youth and Governance; Legal Reform; Legislation; Educational Sciences (search for similar items in EconPapers)
Date: 2021-04-28
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Effects of public sector wages on corruption: Wage inequality matters (2023)
Working Paper: Effects of Public Sector Wages on Corruption: Wage Inequality Matters (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:9643

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