From the Vicious to the Virtuous: Inequality-Corruption Feedback and Redistribution in Advanced Democracies

Abstract

"Inequality-corruption feedback" refers to a bidirectional causal relationship between economic inequality and corruption. This thesis expands on the existing literature on inequality-corruption feedback in two primary ways: first, by offering several new theoretical arguments for mechanisms by which inequality and corruption reinforce each other in democracies, and second, by considering the role of redistribution as a policy intervention which mitigates inequality-corruption feedback. In particular, I examine three primary mechanisms by which inequality promotes corruption. First, I argue that corruption incentives increase in contexts where inequality promotes social closure, reduces upwards mobility, promotes anxiety about downward mobility, and reduces the legitimacy of institutional and legal rules. Second, I argue that fears of progressive reform encourage political elites to engage in political and rent-seeking corruption. Third, I argue that inequality weakens democratic accountability mechanisms designed to keep corruption in check. In particular, economic inequality depresses political mobilization, which decreases the potency of electoral discipline, and encourages the selection of the political elite only from wealthy circles, which reduces the horizontal social distance between politicians and economic elites and exacerbates the moral hazard for corruption. In turn, corruption increases inequality since the wealthy can disproportionately utilize corrupt channels for personal gain, and since corruption reduces perceptions of bureaucratic capacity and institutional legitimacy, reducing support for additional welfare spending. However, I argue that redistribution can intervene in this feedback process by reducing the level of disposable inequality, encouraging upward mobility and lowering anxieties about downward mobility through the provision of social insurance, and by activating pro-welfare policy feedbacks among the poor and middle class. I apply this theory to study corruption backsliding in OECD countries observed in recent decades. Using a combination of cross-national, panel data, and instrumental variable research designs, I find evidence for the general notion of inequality-corruption feedback, and mixed results for the idea that inequality is a major contributor to recent corruption increases among advanced democracies. Finally, I also use cross-national survey data, as well as corruption prosecution data from the United States, to assess the evidence for a number of the proposed mechanisms for inequality-corruption feedback. I interpret my results and theory in the context of the academic literatures studying inequality and redistribution, corruption, and policy feedbacks.