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This paper analyses how corruption-induced income uncertainty affects the relationship between corruption and economic growth. The analysis reveals both the growth-enhancing and deteriorating effects of corruption that transmit through the income and productivity channels, and shows how income uncertainty caused by corruption interacts with both of these effects. In particular, it is found that an increase in bribe rates and the probability of corruption that reduces the burden of regulations generate counteracting effects on income and productivity, where both effects are further aggravated by corruption-induced income uncertainty. On the other hand, a higher burden of bribes imposed by extortive bureaucrats hampers growth unambiguously. However, in a highly corrupt environment, an increase in the incidence of extortive behaviour can be growth enhancing as it reduces income uncertainty, while if corruption levels are relatively low, then a further increase in the incidence of such behaviour deteriorates growth. These findings give us a new insight into why the overall growth effect of corruption is ambiguous. [ABSTRACT FROM AUTHOR]

Using the 2007 household survey data collected by Transparency International Bangladesh, we examine corruption in the education sector in Bangladesh. Our main findings are (i) the incidence of corruption and the amount of bribe increase with the level of red tape, (ii) poorer households, households with a less educated household head, and households with girls studying in school are more likely to be victims of corruption, (iii) households with higher social status are more likely to use informal networks to bypass the red tape or pay less amount of a bribe and, as a result, (iv) corruption is likely to be regressive. [ABSTRACT FROM PUBLISHER]