Corruption is one of the most vexing problems confronting us today: it causes
misallocation of resources and holds back investment, innovation, entrepreneurship, growth and productivity. It can have important distributional implications as its effects may fall more heavily on some agents than others.
At the same time, levels of corruption vary across countries, even among ones at roughly the same level of economic development (figure 1). Why is corruption higher in some places than others? Answering this can help identify what leads to corruption. This is an essential first step in designing polices aimed at curbing this undesirable practice.