When average incomes rise, the average incomes of the poorest fifth of society rise proportionately. This holds across regions, periods, income levels, and growth rates. But relatively little is known about the broad forces that account for the variations across countries and across time in the share of income accruing to the poorest fifth. When average incomes rise, the average incomes of the poorest fifth of society rise proportionately. This is a consequence of the strong empirical regularity that the share of income accruing to the bottom quintile does not vary systematically with average income. Dollar and Kraay document this empirical regularity in a sample of 92 countries spanning the past four decades and show that it holds across regions, periods, income levels, and growth rates. Dollar and Kraay next ask whether the factors that explain cross-country differences in the growth rates of average incomes have differential effects on the poorest fifth of society. They find that several determinants of growth - such as good rule of law, openness to international trade, and developed financial markets - have little systematic effect on the share of income that accrues to the bottom quintile. Consequently, these factors benefit the poorest fifth of society as much as everyone else. There is some weak evidence that stabilization from high inflation and reductions in the overall size of government not only increase growth but also increase the income share of the poorest fifth in society. Finally, Dollar and Kraay examine several factors commonly thought to disproportionately benefit the poorest in society, but find little evidence of their effects. The absence of robust findings emphasizes that relatively little is known about the broad forces that account for the cross-country and intertemporal variation in the share of income accruing to the poorest fifth of society. This paper - a product of Macroeconomics and Growth, Development Research Group - is part of a larger effort in the group to study growth and poverty reduction. The authors may be contacted at ddollar@worldbank.org or akraay@worldbank.org.

Growth is Good for the Poor

Corruption is attracting a lot of attention around the world. The paper surveys and discusses issues related to the causes, consequences, and scope of corruption and possible corrective actions. It emphasizes the costs of corruption in terms of economic growth. It also emphasizes that the fight against corruption may not be cheap and cannot be independent from the reform of the state. If certain reforms are not made, corruption is likely to continue to be a problem regardless of actions directly aimed at curtailing it.

Corruption Around the World: Causes, Consequences, Scope, and Cures

Many scholarly articles on corruption give the impression that the world is populated by two types of people: the "sanders" and the "greasers". The "sanders" believe that corruption is an obstacle to de- velopment, while the "greasers" believe that corruption can (in some cases) foster development. This paper takes a critical look at these positions. It concludes that the evidence supporting the "greasing the wheels hypothesis" is very weak and shows that there is no cor- relation between a new measure of managers'actual experience with corruption and GDP growth. Instead, the paper uncovers a strong negative correlation between growth in genuine wealth per capita -a direct measure of sustainable development -and corruption. While corruption may have little average eect on the growth rate of GDP per capita, it is a likely source of unsustainable development.

/pdf/corruption-institutions-and-economic-development-1j0tpvq0hy.pdf

Corruption, institutions, and economic development

This paper uses panel data from African countries and a dynamic panel estimator to investigate the effects of corruption on economic growth and income distribution. I find that corruption decreases economic growth directly and indirectly through decreased investment in physical capital. A unit increase in corruption reduces the growth rates of GDP and per capita income by between 0.75 and 0.9 percentage points and between 0.39 and 0.41 percentage points per year respectively. The results also indicate that increased corruption is positively correlated with income inequality. The combined effects of decreased income growth and increased inequality suggests that corruption hurts the poor more than the rich in African countries.

Corruption, economic growth, and income inequality in Africa

The regnant scholarly consensus linking good governance—the quality of public administration—to economic development has undergone surprisingly little empirical scrutiny. We examine the relationship by asking two questions: How confident are we in our cross-national measures of good governance? How solid are the empirical foundations of the growth-governance causal linkage? Our results suggest that the dominant measures of governance are problematic, suffering from perceptual biases, adverse selection in sampling, and conceptual conflation with economic policy choices. Within the limits of somewhat problematic measures, the evidence suggests that there is far more reason to believe that growth and development spur improvements in governance than vice versa. The policy implications are profound, for international organizations and governments are beginning to condition developmental aid on problematic measures of administrative performance.

https://www.jstor.org/stable/10.1111/j.1468-2508.2007.00549.x

Growth and Governance: Models, Measures, and Mechanisms

This paper demonstrates that high and rising corruption increases income inequality and poverty by reducing economic growth, the progressivity of the tax system, the level and effectiveness of social spending, and the formation of human capital, and by perpetuating an unequal distribution of asset ownership and unequal access to education. These findings hold for countries with different growth experiences, at different stages of development, and using various indices of corruption. An important implication of these results is that policies that reduce corruption will also lower income inequality and poverty.

https://papers.ssrn.com/sol3/Delivery.cfm/WPIEA0761998.pdf?abstractid=882360&rulid=128025&mirid=2

Does Corruption Affect Income Inequality and Poverty

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.

https://pria-academy.org/pdf/ISA/m2/m2-1-Corruption-IncomeIneq-Pov.pdf

Does corruption affect income inequality and poverty

One of the crucial areas of government policy responsible for the weak development performance of the Philippines is tax policy and administration. By 2011, the tax to GDP ratio had fallen to a meagre 12.3 per cent, 4.6 percentage points below the pre-1997 level and around 7 points below the regional average. The absence of tax reform reflects a set of inter-related factors. First, long periods of political and economic stability have meant that crises have not provided the opportunity for reform that they allowed, for instance, in Latin America. Second, the highest level of income inequality in East Asia has resulted in state capture by the elite, which in turn perpetuates and increases income differences. Third, Filipinos exhibit a marked preference for the state to deliver private over public goods as a modern and legal version of patronage. Fourth, the middle classes, on whose shoulders the tax burden largely falls, aware of the state’s inability to tax the wealthy and the relatively poor quality of public services, opt out of state services and provide privately for education, health and even security. Fifth, the disempowerment of the poor keeps them quiescent, not putting pressure on the state to cater to their needs. Promising avenues for change include: a) academia and development partners to take a more active role in analysing and disseminating the reasons for the poor performance of the Philippine economy; b) stronger leadership by churches in encouraging integrity and pro-poor attitudes, behaviour, institutions and policies; and c) a coalition of all interested stakeholders for a more developmental, clean and pro-poor government, including committed civil servants and politicians, civil society organisations, academia, media, church groups and private sector representatives.

Rosa Alonso-Terme

Papers

Does Corruption Affect Income Inequality and Poverty

Does corruption affect income inequality and poverty

What Prevents the Philippines from Undertaking Tax Reform? A Story of the Unravelling State