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International Monetary Fund
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.
International Monetary Fund

Front Matter Page Research Department Authorized for distribution by Vito Tanzi and Peter Wickham Contents Summary I. Introduction II. Theoretical Background A. General Framework Shirking–corruption in a maximizing framework, complemented by societal standards Fair wages–corruption in a satisficing framework B. Specific Implications Fair wage–corruption hypothesis Shirking hypothesis III. Empirical Implementation, Defining Corruption and its Causes A. Dependent Variable, Definition of Corruption B. Independent

International Monetary Fund

obtains: EI = ( 1 − pC ) ( CB + W g ) + pC ( W p − f ) ) ( 4 ) This equation will be the basis for the analysis which follows. What we will call the “fair wage–corruptionhypothesis is the hypothesis that workers choose levels of C in an attempt to reach EI=EI * . EI = ( 1 − pC ) ( CB + W g ) + pC ( W p − f ) ) = EI

Ms. Caroline Rijckeghem

control variables. The upper range is difficult to reconcile with the conceivable level of fair wages, casting doubt on the fair wage-corruption hypothesis. It is, however, important to recall that few countries had high civil-service wages so that the hypothesis that corruption is (close to) zero for that wage range cannot be tested directly; the results rely instead on extrapolation of a linear relationship estimated for low relative wages. And as shown in Appendix B , behavior under the fair-wage hypothesis can “collapse” to that under the shirking hypothesis when