Relationships between corruption, political orientation, and income inequality: evidence from Latin America

ABSTRACT

This research sheds light on the analysis of the impact of corruption and political orientation on income distribution in Latin America. Although it has been theoretically demonstrated that corruption worsens the income distribution, the empirical evidence has yielded ambiguous results based on biased estimates not considering a measurement error in the estimation of inequality. This article fills this gap by correcting the previous measurement error bias in the fixed-effects estimation. Additionally, political orientation and its relationship with income inequality are also investigated. The sample covers 18 Latin American countries between 1996 and 2012. Results reveal that corruption increases income inequality.

KEYWORDS:

• Corruption
• income inequality
• panel data
• Latin America
• political orientation

JEL CLASSIFICATION:

• D73
• B22
• C23

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Data available by December 2015.

² There are many k-nearest neighbour algorithms for outlier detection but most of them calculate the nearest neighbours of a record using a proper distance calculation metric such as Euclidean distance or Mahalanobis distance. To see a complete survey of outlier detection methodologies, see Hodge and Austin (2004).