The welfare costs of corruption

Corruption has been shown to affect a variety of economic indicators, especially GDP per capita. However, as GDP is not a genuine indicator of welfare, it may reflect the welfare costs of corruption only in an incomplete way. This article uses self-rated subjective well-being as an empirical approximation to general welfare and shows that cross-national welfare – operationalized in this way – is affected by corruption not only indirectly through GDP, but also directly through nonmaterial factors. This article estimates the size of these effects as well as their monetary equivalent. The direct effect – not previously investigated in the corruption literature – is found to be substantially larger than the indirect effect.