Does More Corruption Lead to Higher Prices? An Empirical Analysis

This paper examines the existing relationship between inflation and corruption in a country-level panel data analysis from 2012 to 2021. Our findings are consistent with the existing literature, indicating a positive relationship between corruption and inflation. Specifically, inflation rates related to the real estate market were sensitive to increases in perceived corruption, indicating that this sector is subject to illicit practices and is an essential component of the countries’ inflationary basket. Furthermore, when we examine the behavior of past economic freedom on current inflation, we see similar and even more significant increases in inflation, which indicates corruption has a long-term effect. Finally, there is evidence that a country’s income level is related to perceived corruption levels, with poorer countries experiencing higher levels of corruption and richer countries experiencing lower levels. A country’s income level is frequently related to its cultural background and the regional subgroup it belongs to. According to this metric, Northern and Western Europe, North America, Australia, and New Zealand had the lowest levels of perceived corruption.