DC Accepted Papers Paper: Applying Structural Equation Modeling to Analyze the Mutual Causality between Corruption and Trust and the Impact of the Car Wash Operation

*Names in bold indicate Presenter

Eduardo Carvalho Nepomuceno Alencar, University of California, Irvine

Studies point out that corruption globally cost at least 5% of GDP, around USD 3.6 trillion per year, undermining the economic development and increasing social inequality. Based on data from the 2012 and 2016 America Barometer studies, this article empirically explores the relationship linking trust and corruption in Brazil, Mexico, and selected countries. This study also analyzes the effect of the biggest anti-corruption and money laundry investigation in Latin America, called Operation Car Wash, on those variables. From America Barometer surveys of around 22,579 citizens, in 2016 corruption appeared for the first time as the main concern for Brazil and corruption was ranked as the third most critical problem in Mexico. Because the potential endogenous relationship between trust and corruption may violate the assumptions of ordinary least squares (OLS), simultaneous equations model (SEM) accounting for missing values and instrumental variables are employed here. First, this study will analyze the mutual causality between citizens’ experience with corruption and their trust in the local government and what factors explain this hypothesized relationship. Second, this paper presents a multi-group analysis in order to assess the impact of Operation Car Wash on the model. This study suggests no evidence of a simultaneous relationship between corruption experience and trust in local government; however, it provides insights that could result in policy implications. Also, the is no evidence that Operation Car Wash significantly impacted by the model because structural coefficients do not operate the same way across countries and years. However, this may occur because all the countries in this study have considerable levels of corruption, independent of its involvement in the Operation Car Wash. This study adds on the corruption and trust literature being the first study to apply SEM to explore the relationships between corruption experience and trust in the local government and the effect of Operation Car Wash on those indicators.