Does Corruption Increase Inequality? Evidence From a European Fact‐Based Assessment

ABSTRACT This paper examines whether government favoritism in public procurement generates negative social costs, even within redistributive institutional frameworks such as the European Union. Rather than relying on perception‐based corruption indicators, we employ an objective proxy of corruption risk—the share of awarded public contracts which received only one bid. This measure captures non‐competitive allocation and mitigates reverse causality concerns. Using static and dynamic fixed effects panel models, we find that procurement favoritism is systematically associated with adverse social outcomes across EU member states. Specifically, we document robust, statistically significant negative effects on educational attainment, income inequality, and poverty. Our results suggest that governance quality—and not merely the volume of public expenditure—is a critical determinant of social development, and that distortions in procurement processes can undermine the effectiveness of public spending even where formal cohesion commitments exist.