Information Management and Business Review (ISSN 2220-3796) Vol. 15, No. 3(SI), pp. 108-116, September 2023 108 Does Financial Development and Corruption reduce the level of Income Inequality? Evidence from Malaysia Norhasimah Shaharuddin 1* , Mohd Hafiz Abd. Wahab 2 , Nik Rozila Nik Masdek 3 , Norzitah Abdul Karim 4 , Bushra Mohd Zaki 5 & Salwaty Jamaludin 6 1,3,4,5&6 Faculty of Business Management, UiTM Puncak Alam, Malaysia 2 Academy of Contemporary Islamic Studies (ACIS), UiTM Shah Alam, Malaysia *shimasaha@uitm.edu.my, hafiz313@uitm.edu.my, nik_rozila@uitm.edu.my, norzitah@uitm.edu.my, bushra@uitm.edu.my, salwatyjamaludin@uitm.edu.my Abstract: Income inequality is an enduring issue and an important one to address, especially in the new era of digital transformation, as it is a crucial element in promoting persistent income inequality. The theory is that while financial development promotes economic growth, the mixed explanations of previous studies show that this does not always help low-income people in emerging economies. Moreover, the effects of globalization may reinforce motives and increase opportunities for international corrupt practices. It is, therefore, crucial to explore how corruption can be motivated by ineffective rules governing cross-border crimes and how technology can open up new avenues for corrupt behavior, for example by making it easier to find victims, accomplices and money. Profound socio-economic changes can also provide incentives and opportunities for corruption. This study examines how corruption and financial development affect the wealth gap in a developing country like Malaysia over the period 1995 to 2021. The empirical results show that financial development has a positive impact on income inequality. Moreover, the result also shows that corruption control is an insignificant determinant of per capita income in Malaysia. Even though the growth of the financial sector has led to a variety of outcomes, it has only helped to reduce income inequality. Income inequality is negatively and significantly affected by the interaction between financial development and anti- corruption. It is therefore important to promote financial development, prevent corruption and increase government transparency as these factors can promote sustainable economic development and resilience. Keywords: Financial development, Corruption, Income Inequality, Malaysia. 1. Introduction and Background Malaysia's economy has recently made great strides in reducing poverty, but income distribution has yet to stabilize. Malaysia has always been concerned with issues of income inequality. First, there is the problem of ethnic inequality, which existed long before Malaysia became independent. Secondly, after the violent ethnic riots in May 1969, economic policies were changed to focus on growth and a more equal distribution of wealth among ethnic groups, especially the Malays. Economic inequality in Malaysia peaked in 1976 before declining until 1990. According to Shari (2000) and Law & Tan (2009), the general development policy of the New Economic Policy (NEP) influenced the economy from 1971 to 1990. The general development policy implemented under the New Economic Policy (NEP) 1971-1990 had a major impact on reducing income inequality in Malaysia. However, since 1990, a trend of increasing income inequality has been observed. Shari (2000) stated that the reversal of government policies towards liberalization, deregulation and privatization since the late 1980s has contributed to this trend of increasing inequality. Ragayah et al. (2000) also examined the hypothesis that rising income inequality in the 1990s was the result of the shift in industrialization from labor-intensive to capital- and technology-intensive. During the period 1991-2000, the economy was driven by the National Development Policy (NDP), which aimed to maximize economic growth through policies that allowed the free play of market mechanisms and the active participation of the private sector (Economic Planning Unit). The main objective of the NDP was to sustain economic progress to achieve the status of a fully developed nation by 2020, as envisaged in the Vision 2020 long-term plan. These policy reforms were accompanied by the role of the private sector in the market to improve investment efficiency and productivity. It is argued that the imbalance in income inequality was caused by wage rates. The wages of skilled workers are rising much faster than those of unskilled workers. Based on the new economic and political study, the theme for Budget 2023 is “Membangun Malaysia Madani” (Developing a