Author(s): Sofia Wickberg

Corruption and the Costs of Redistribution: Micro 
Evidence from Indonesia
Olken Benjamin A. , 2005, National Bureau of 
Economic Research: 
http://economics.mit.edu/files/2914
This paper examines the degree to which corruption in 
developing countries may impair the ability of 
governments to redistribute wealth among their citizens. 
Specifically, it examines a large anti-poverty program in 
Indonesia that distributed subsidised rice to poor 
households, estimating the extent of corruption in the 
program by comparing administrative data on the 
amount of rice distributed with survey data on the 
amount actually received by households. The central 
estimates suggest that, on average, at least 18 % of the 
rice appears to have disappeared. Using conservative 
assumptions for the marginal cost of public funds, the 
paper estimates that the welfare losses from this 
corruption may have been large enough to offset the 
potential welfare gains from the redistributive intent of 
the program. These findings suggest that corruption 
may impose substantial limitations on developing 
countries’ redistributive efforts, and may help explain 
the low level of transfer programs in developing 
countries. 
Does corruption affect income inequality and 
poverty? Economics of governance: 
Gupta Sanjeev, Davoodi Hamid, and Alonso-Terme 
Rosa, 2002 
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=882360
This paper provides evidence that high and rising 
corruption increases income inequality and poverty. A 
worsening in the corruption index of a country by one 
standard deviation is associated with the same increase 
in the Gini coefficient of income inequality
2
as a 
reduction in average secondary schooling of 2.3 years. 
A one-standard-deviation increase in the growth rate of 
corruption reduces income growth of the poor by 7.8 
%age points a year. The paper discusses several 
channels through which corruption may affect income 
inequality and poverty, for instance by negatively 
affecting economic growth, progressivity of the tax 
system, level and effectiveness of social spending, and 
formation of human capital. An important implication of 
these findings is that policies that reduce corruption will 
most likely reduce income inequality and poverty as 
well. 
4. Impact of corruption on 
development outcomes and 
basic services 
Several reports provide evidence of the negative 
consequences of corruption on quality of government, 
investments, and on the quantity and quality of basic 
services, which disproportionately affects the poorest, 
who heavily depend on them.
Therefore by affecting development outcomes, 
corruption is also likely to affect the ability of developing 
countries to reach the Millennium Development Goals 
(MDGs). For example, as the OECD 2013 report listed 
above mentions, “child mortality rates in countries with 
high levels of corruption are about one third higher than 
in countries with low corruption, and infant mortality 
rates are almost twice as high and student dropout 
rates are five times as high.”
This section provides an overview of the correlation 
between corruption and human development, as well as 
a list of studies observing the impact and costs of 
corruption with regards to human development and the 
provision of basic services.