CORRUPTION AND INFLATION IN TRANSITION EU MEMBER COUNTRIES

The aim of this paper is to investigate the impact of corruption on inflation in the EU during the specific conditions of transition of socialist economies to the modern entrepreneurial society. We used the corruption perception index as the best measure of corruption in observed countries while inflation was measured by consumer price index. The research could not be done in terms of administrative control on prices because it would not give the right results. Therefore, the success of the research assumptions was some level of liberalization of domestic economy where the cumulative liberalization index is used as an adequate measure. Investigation of seemingly unrelated social phenomena gave additional light on the causes of price increases in the observed transition countries, and also gave the possibility of finding complete and the most appropriate instruments to combat inflation. The researching paper demonstrates the positive impact of corruption on inflation while the strength of its influence is however weak. In addition too, the impact of corruption on inflation is largely indirect and occurs with a time delay because it takes some period of time in order to switch "cost of corruption" to the final holders of such costs. Indicators for the observed transition time related to Croatia, more closely fit the observed data of other transition countries.