Studying Nonlinear Relationship between Corruption Perceptions Index and Income Inequality in D8 Countries; Application of Panel VAR Model

The high level of corruption is a sign of state weakness and will lead to inefficiency of the government policies. On the other hand, corruption can have an important effect on fair distribution of income as one of the government's economic policies to reduce poverty. For this purpose, the present study uses Panel Vector Auto-Regression analysis to examine the relationship between corruption perceptions index and income inequality in D8 countries during the period of 2003-2016. In addition to the cointegration relationship between the variables, fully modified least squares method are discussed to determine long-term relationships between variables. The results of the model estimation indicate the U-shape between corruption and income inequality. This result shows the inefficient role of corruption in the economies of the countries.
In fact, corruption can be regarded as a privilege and instrument in the hands a group of people who, using this illegal instrument, can easily obtain various privileges, and through bribery and rents to macro-illegal profits which will also increase class gap in society.The Kuznets hypothesis also confirms the existence of an inverse U-shape relationship between per capita income and income inequality and a U-shaped relationship between government size and income inequality. In addition, the relationship between tax revenue to GDP and unemployment rate with income inequality were negative and positive respectively.