Inequality and Economic Development:The Role of Corruption

Abstract

This paper presents a model where income inequality negatively affects economic growth through corruption by politicians. While politicians pursue corruption rents that reduce the provision of public goods and sacrifice citizen's welfare, they are also concerned about the political support of citizens to maintain their political power. When inequality among citizens is large, political support is less sensitive to corruption. Therefore, large inequality increases corruption and impedes economic growth. Since corruption is more prevalent in poor countries than rich ones, our argument is consistent with the evidence that shows a negative relationship between inequality and growth in poor countries.Corruption, Income Inequality, Economic Growth