Working Papers,
University of Aarhus, Aarhus School of Business, Department of Economics

Abstract: I examine the causal relation between social capital and corruption. A simple model illustrates potential mechanisms and yields testable implications, which I estimate in a sample of European countries. The estimated effect of social capital on corruption is found to be robust to the inclusion of a number of other variables and supplementing the sample with slightly older data from non-European countries. The evidence of the reverse causal direction is weak. I suggest that it is possible to build social capital through investing in education, interest in society and some level of income redistribution, which in turn reduces corruption.

Keywords: Corruption; Illegal behavior; Rent-seeking; Social capital

JEL-codes: D72; K42; Z13

31 pages, January 7, 2003

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