Cecilia García-Peñalosa a

Abstract: We model the two way interaction between education, corruption and the level of output. Corruption reduces income levels and hence educational attainment. Education in turn affects the incentives for corruption: more education increases output and thus the rents from corruption, but it also increases the probability that the electorate identifies corrupt behavior and ousts the incumbent party. In this context, we identify the conditions under which an opportunist party has the incentives to take actions that will allow the economy to escape from a poverty trap. Our analysis shows that the relationship between education, output levels and the level of corruption is non-monotonic, and that both institution-led development and education-led development are possible. Which path occurs crucially depends on the initial level of inequality