An empirical examination of the relationship between income inequality and corruption in Africa

Abstract

Most studies examining the relationship between corruption and income inequality have treated income inequality as the dependent variable and corruption as an independent variable. However, a sparse but growing strand of the literature now looks at the reverse because there is reason to believe that higher income inequality may influence corruption levels. Furthermore, the empirical literature is inconclusive on the exact relationship between income inequality and corruption across different regions and income categories. We contribute to this literature by providing empirical evidence from Sub-Saharan Africa using an unbalanced panel data for 48 countries from 1996 to 2016. Contrary to prior results from developed countries, our results show that higher levels of income inequality are rather associated with lower corruption levels and suggestive of a changing relationship between income inequality and corruption among countries on different income trajectories. We also find a reverse causality between income inequality and corruption and that corruption Granger-causes income inequality. Finally, results from OLS, random effects and fixed effects models reveal a U-shaped relationship between income inequality and corruption for low-income and lower-middle-income African countries with turning point income inequality levels ranging from 22 to 52.