Public spending, corruption, and income inequality: A comparative analysis of Asia and Latin America

Abstract

Based on data from 16 Asian and 18 Latin American countries from 1996 to 2009, this article argues that corruption does indeed affect the distributive outcomes of government spending, but not necessarily in the expected direction. The incentives for bureaucrats and politicians to abuse their power during the budgetary process suggests that corruption should concentrate public funds in the hands of elites, exacerbating inequality. However, this should only be expected when corruption takes the form of looting (embezzlement). When it takes the form of cheating (vote-buying), it may actually reduce inequality as it involves resource distribution and building of clientelistic linkages. It is the level of political competition rather than regional differences that determines the distributional effects of corruption in Asia and Latin America. This article has profound implications for the study of corruption and policy outcomes, suggesting that the level of political competition is a key factor in determining the outcomes of corruption.