Inequality, corruption and the informal sector

The marginal impact of corruption on income inequality is shown to be a linear function of the size of the informal sector. This implies that anti-corruption policies alone are unlikely to reduce inequality in countries with a large informal sector.

► Impact of corruption on inequality falls as the informal sector becomes larger. ► Critical size of the informal sector is about 22% of GDP. ► After 22%, impact of corruption on inequality becomes statistically insignificant. ► If informal sector is large, anti-corruption measures will not reduce inequality.