Abstract
Public-sector wage reform in developing countries is constrained by limited fiscal space, persistent corruption incentives, and weak enforcement capacity. Conventional salary increases are fiscally costly, while enforcement-based anti-corruption strategies have shown limited long-term effectiveness. This paper proposes the Deferred Integrity Pay (DIP) model, a fiscally neutral wage reform framework that increases the lifetime value of civil-service compensation without increasing current government expenditure. The model restructures wages into three components: a basic monthly living wage, an integrity-contingent deferred account accumulated over the career, and a forfeiture condition triggered by confirmed corruption offenses. By integrating institutional economics and behavioral insights, particularly loss aversion and long - horizon incentives, the DIP framework realigns individual incentives toward integrity while preserving short-term fiscal discipline. The paper develops the conceptual architecture of DIP, analyzes its incentive effects, macro-fiscal implications, and governance externalities, and outlines a phased implementation strategy suitable for developing economies. DIP is proposed as a scalable institutional mechanism for reducing corruption, strengthening state capacity, and improving public-sector performance under binding fiscal constraints.
Keywords. Public sector reform; Deferred compensation; Anti-corruption; Fiscal neutrality; Institutional economics.
JEL. H11; H83; D73.
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