Admission is Free Only if Your Dad is Rich! Distributional Effects of Corruption in Schools in Developing Countries

In the standard model of corruption, the
rich are more likely to pay bribes for their children's
education, reflecting higher ability to pay. This prediction
is, however, driven by the assumption that the probability
of punishment for bribe-taking is invariant across
households. In many developing countries lacking in rule of
law, this assumption is untenable, because the enforcement
of law is not impersonal or unbiased and the poor have
little bargaining power. In a more realistic model where the
probability of punishment depends on the household's
economic status, bribes are likely to be regressive, both at
the extensive and intensive margins. Using rainfall
variations as an instrument for household income in rural
Bangladesh, this paper finds strong evidence that corruption
in schools is doubly regressive: (i) the poor are more
likely to pay bribes, and (ii) among the bribe payers, the
poor pay a higher share of their income. The results
indicate that progressivity in bribes reported in the
earlier literature may be due to identification challenges.
The Ordinary Least Squares regressions show that bribes
increase with household income, but the Instrumental
Variables estimates suggest that the Ordinary Least Squares
results are spurious, driven by selection on ability and
preference. The evidence reported in this paper implies that
"free schooling" is free only for the rich and
corruption makes the playing field skewed against the poor.
This may provide a partial explanation for the observed
educational immobility in developing countries.