This paper develops and tests two efficiency wage models of corruption in the civil service. Under fair wage models, civil service wages are an important determinant of corruption. Under shirking models, the level of wages is of secondary importance, as potential bribes dwarf wage income. The empirical evidence points to a negative relationship between corruption and wages across developing countries. Tests as to the validity of the two different efficiency wage models are inconclusive.
The importance of adequate remuneration in ensuring an honest civil service is widely recognized in the policy debate.1 The issue of optimal government pay or its cost-effectiveness has not yet been settled, however, and a number of recent theoretical papers suggest that ensuring an honest civil service may be prohibitively expensive.2 This paper provides empirical estimates on the magnitude of the effect of civil-service wages on corruption, as a first step toward a cost-benefit analysis of civil-service wage increases.3