Why Do Firms Hide? Bribes and Unofficial Activity after Communism
Massachusetts Institute of Technology (MIT) - Entrepreneurship Center; National Bureau of Economic Research (NBER)
The Brookings Institution
Stanford Graduate School of Business; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
Christopher M. Woodruff
University of California, San Diego (UCSD) - Graduate School of International Relations and Pacific Studies (IRPS)
Journal of Public Economics, Vol. 76, No, 3 Pp. 495?520
Our survey of private manufacturing firms finds the size of hidden 'unofficial' activity to be much larger in Russia and Ukraine than in Poland, Slovakia and Romania. A comparison of cross-country averages shows that managers in Russia and Ukraine face higher effective tax rates, worse bureaucratic corruption, greater incidence of mafia protection, and have less faith in the court system. Our firm-level regressions for the three Eastern European countries find that bureaucratic corruption is significantly associated with hiding output.
Keywords: Corruption, taxation, legal system, unofficial economy
JEL Classification: H26, K42, O17Accepted Paper Series
Date posted: October 4, 2001
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