Perceived income inequality and corruption

The theories linking income inequality to corruption are numerous, yet economists mostly fail to support them with empirical evidence. In this thesis, I argue that the primary reason why empirical studies find no significant link between income inequality and corruption is the conceptual difference between income inequality and its perception.

Corruption in the public sector is the result of an interaction between two agents: a public official and a private individual. A public official takes into account several different factors when he decides to engage in corruption. If income inequality is theorized to be one of those factors, it is essential to take into account that agents are subject to a veil of ignorance, especially in matters relating to distribution of income. A public official will not have perfect information on the distribution of income; instead he will rely on his own perceptions drawn from a sub-sample of the population. These perceptions are formed by experiences over time with the limited information that the economic agents possess. Latest studies on the subject demonstrate that systematic biases exist in individual’s perceptions of inequality. Failure to address these biases might be causing the lack of supporting evidence to theories linking income inequality to corruption.

This thesis develops a new conceptual and economic framework in order to shed light into the relationship between inequality perceptions and corruption. I explore the answers of my research questions through the use of three main methods: Regression analyses, a laboratory experiment and a country-case study in Turkey including interviews with public officials.