Rent-Seeking, Financial Scandals and Inequality: Evidence From the UK, 1908–2010

The paper investigates the determinants of rent-seeking behavior under differing regulatory regimes over the long run, with a focus on the link between inequality and financial fraud and financial scandal. Using archival and quantitative evidence, from the United Kingdom between 1908 and 2010, it shows that changes in the structure of economic activity and financial regulation that promote income equality lead to a reduction in fraud and financial scandals, and vice versa. The results show that systemic and macro factors determine the extent of financial fraud, notwithstanding the effectiveness or otherwise of the accounting profession and regulators. Suppression of the financial sector explains the reduction in income inequality fraud and financial scandal in the period 1910-1979. Financial liberalization post-1979 has increased income inequality and the incidence of fraud and financial scandal.