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.
Details
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Author
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Document Date
2021/04/28
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Document Type
Policy Research Working Paper
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Report Number
WPS9643
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Volume No
1
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Total Volume(s)
1
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Country
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Region
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Disclosure Date
2021/04/28
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Disclosure Status
Disclosed
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Doc Name
Effects of Public Sector Wages on Corruption : Wage Inequality Matters
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Keywords
corruption; wage differential; public sector wage; public sector wage premium; government final consumption expenditure; rule law indicator; good rule of law; effectiveness of law enforcement; Wage Compression; public sector worker; shares of contract
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Citation
Demirguc-Kunt,Asli Lokshin,Michael M. Kolchin,Vladimir
Effects of Public Sector Wages on Corruption : Wage Inequality Matters (English). Policy Research working paper,no. WPS 9643 Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/387481619624669061/Effects-of-Public-Sector-Wages-on-Corruption-Wage-Inequality-Matters