This paper provides evidence that high and rising corruption increases income inequality and poverty. An increase of one
standard deviation in corruption increases the Gini coefficient of income inequality by about 11 points and income growth
of the poor by about 5 percentage points per year. These findings are robust to use of different instruments for corruption
and other sensitivity analyses. The paper discusses several channels through which corruption may affect income inequality
and poverty. An important implication of these findings is that policies that reduce corruption will most likely reduce income
inequality and poverty as well.
Key words: Corruption, income inequality, poverty
JEL Classification: D73, D31, I32
Received: March 2, 2000 / Accepted: September 20, 2001