In one Warlord-level game I built up a treasury of 5000 gold and could afford to investgate every city of a rival civilization (I assume they were a democracy, though I forgot to check). Every one of their cities has 100% happy citizens, yet at a given distance from the capital (which I take to be number of tiles by the shortest route) they were losing a greater fraction to corruption than I was. They had also built the Forbidden Palace in the city next to the capital.

Now that I know the AI doesn't cheat, I feel much better about corruption, since I think I can deal with it more skillfully than the AI. It will be interesting to see what happens at harder difficulty levels.

If others want to try the same sort of research, all you need is a saved game with a treasury of a thousand or so. Reload the saved game and investigate cities until you are broke, noting distance from capital or FP and corruption level, then reload and repeat.