| Summary: | The theories linking income inequality to corruption are numerous, yet economists mostly fail to support them with empirical evidence. In this thesis, we argue that the primary reason why empirical studies find no significant link between income inequality and corruption is the conceptual difference between income inequality and its perception. Corruption in the public sector is the result of an interaction between two agents: a public official and a private individual. A public official considers several different factors when he decides to engage in corruption. If income inequality is theorized to be one of those factors, it is essential to consider that agents are subject to a veil of ignorance, especially in matters relating to the distribution of income. Public officials do not have perfect information on the distribution of income; but rather rely on their own perceptions drawn from a sub-sample of the population. These perceptions are formed by experiences over time with the limited information that the economic agents possess. Recent studies on the subject demonstrate that systematic biases exist in individuals' perceptions of inequality. Failures to address these biases, might be contributing to a lack in substantive evidence that would otherwise be able to link income inequality to corruption. This thesis develops a new conceptual and economic framework to shed light on to the relationship between perceptions of inequality and corruption. We explore the answers of our research questions using three main methods: Regression analyses, a laboratory experiment and a country-case study in Turkey including interviews with public officials. While the results of the regression analysis do not provide evidence to suggest that a rise in actual income inequality corresponds with higher levels of corruption, our results do however support the hypothesis that there is a strong link between perceived nationwide inequality and forms of corruption. Our experimental design allows us to investigate the ways in which subjects' behaviours change when initial endowment inequality differs between treatments in a bribery game. We observe the impact of inequality to subjects' decisions through its effect on perceptions. The economic model is built upon several assumptions, such as the public officials' lack of comprehensive information on incomes of others, and their inequity aversion. We administer a country-case study in Turkey to examine whether these assumptions are realistic and valid. Data we gather from the interviews, as well as existing surveys, enable us to shed more light into the differences between measured and perceived inequality.
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