Public Sector Corruption and Trust in the Private Sector

In this paper we use data from the Afrobarometer surveys to demonstrate that there is an undesirable spill-over from petty corruption in the public sector to trust in private sector institutions. Our results show that experiencing bribery in the course of one’s interactions with the public sector lowers one’s trust in big private corporations, small businesses, and local traders. This finding holds even when we allow for perceptions of political corruption to enter the specification. We do not find any significant association between a measure of interpersonal trust and bribery experience which suggests that our findings with regards to market institutions are not driven by corruption lowering trust in general. Having to pay a bribe for household services, which is perhaps the setting most like a private sector transaction, is the corrupt interaction most strongly associated with the decline in private sector trust. We find some evidence that the spill-over is larger in democracies than in non-democratic regimes. Given the importance of trust in market institutions for the efficient functioning of an economy, our findings thus point to a previously unknown and potentially substantial cost of corruption and add to the case for anti-corruption efforts.