Better explanation found on the ikariam forums:

Originally posted by chupchup
Please see the table in the Ikariam wiki article: Corruption.

There is a confusion in terms of percentages here. When they said corruption would rise to 20%, they meant it would be 1/5th of the normal value. At the final 100% update that only means that corruption will not be reduced as before.

I have a capital plus two colonies for a total of three cities and I am preparing to found the third. Now when the update was introduced and I had no GRs, my corruption should have been 16% at full value. But due to the initial reductions it was only 1% actual. Now I have built my GRs to eliminate it entirely, but let's suppose I didn't. 1/5th of 16% is 3.2%, so for the coming update that will be the value. Still tiny. I am founding my third colony right now, with the potential for 23% corruption there. It will only be 4.6%! And that is only until I can get my GR up to speed there.

As you can see, we are still talking about tiny values here. If you're bold enough to expand to 7 colonies (8 cities) with no GR, you will see 51% corruption and when they jack it up to full values, you will certainly see a reduction in output. I believe the corruption directly indicates that hit so if your income should be 5k/hour then it will drop to under 2.5k/hour at 51% corruption.

Furthermore, the GR level only needs to be equal to the number of COLONIES you have, like the palace, so in a three-city empire, they only needed to be at level 2 to completely eliminate corruption. Of course this made you ready to found city #4 and there will be no corruption at all, except in the new one.