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The corruption mark-up: is corruption cost incorporated in the prices of goods and services in emerging and developed countries?

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  • Jelena Budak
  • Maruška Vizek

Abstract

We use panel data models on a dataset covering 32 European countries in order to investigate the effect of corruption on the aggregate price level. Along with modeling the overall price level, we also separately model the price levels of consumer goods and consumer services, controlling for other factors that commonly influence the price level in an economy, such as income, trade openness, fiscal dominance, the intensity of local market competition and real money supply. Our results suggest that, in addition to already established adverse economic outcomes of corruption (such as lower growth, an inefficient public sector, underinvestment and increased cost of doing business), corruption in emerging economies also increases the general price level, thus in turn affecting the overall cost of living. This effect of corruption is twice as strong for consumer services as for consumer goods. Unlike in emerging countries, in developed countries corruption does not seem to affect price level determination.

Suggested Citation

  • Jelena Budak & Maruška Vizek, 2015. "The corruption mark-up: is corruption cost incorporated in the prices of goods and services in emerging and developed countries?," Post-Communist Economies, Taylor & Francis Journals, vol. 27(2), pages 247-255, June.
    • Handle: RePEc:taf:pocoec:v:27:y:2015:i:2:p:247-255
    DOI: 10.1080/14631377.2015.1026702
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    References listed on IDEAS

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    1. Mr. Sanjeev Gupta, 1998. "Does Corruption Affect Income Inequality and Poverty?," IMF Working Papers 1998/076, International Monetary Fund.
    2. Paolo Mauro, 2004. "The Persistence of Corruption and Slow Economic Growth," IMF Staff Papers, Palgrave Macmillan, vol. 51(1), pages 1-1.
    3. Mr. Erwin H Tiongson & Mr. Hamid R Davoodi & Mr. Sanjeev Gupta, 2000. "Corruption and the Provision of Health Care and Education Services," IMF Working Papers 2000/116, International Monetary Fund.
    4. Mr. George T. Abed & Mr. Hamid R Davoodi, 2000. "Corruption, Structural Reforms, and Economic Performance in the Transition Economies," IMF Working Papers 2000/132, International Monetary Fund.
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    Cited by:

    1. Iva Tomic, 2016. "What drives youth unemployment in Europe?," Working Papers 1601, The Institute of Economics, Zagreb.
    2. Hongkang Xu & Mai Dao & Jia Wu, 2019. "The effect of local political corruption on earnings quality," Review of Quantitative Finance and Accounting, Springer, vol. 53(2), pages 551-574, August.
    3. Iva TOMIĆ, 2018. "What drives youth unemployment in Europe? Economic vs non‐economic determinants," International Labour Review, International Labour Organization, vol. 157(3), pages 379-408, September.

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