Bribe-Switching

84 Pages Posted: 11 May 2021 Last revised: 21 Oct 2021

See all articles by Desiree Desierto

Desiree Desierto

Economics Department

Jamie Bologna Pavlik

Texas Tech University - Department of Agricultural and Applied Economics

Date Written: May 10, 2021

Abstract

The Foreign Corrupt Practices Act (FCPA) prohibits US firms from paying bribes to foreign public officials. We show that FCPA enforcement has no positive effect on the GDP per capita of the countries of these officials but, rather, increases their countries’ shadow economy. When public officials take bribes both from legal and illegal markets, corruption enforcement in legal markets induces them to make up for lost rents by taking more bribes from illegal markets. In equilibrium, they enforce less against illegal producers, thereby increasing the size of illegal markets. We find that one case of FCPA enforcement alone increases the shadow economy by as much as 0.25 percentage point (pp), homicide rates by 0.02 pp, and trade misinvoicing by 0.5 pp.

Keywords: corruption, bribery, shadow economy, illegal markets

JEL Classification: D72, D73, K42, E26

Suggested Citation

Desierto, Desiree and Bologna Pavlik, Jamie, Bribe-Switching (May 10, 2021). Free Market Institute Research Paper No. 3843425, Available at SSRN: https://ssrn.com/abstract=3843425 or http://dx.doi.org/10.2139/ssrn.3843425

Desiree Desierto (Contact Author)

Economics Department ( email )

4400 University Drive
Fairfax, VA 22030
United States

Jamie Bologna Pavlik

Texas Tech University - Department of Agricultural and Applied Economics ( email )

Suite 167, 2625 Memorial Circle
TTU Administration
Lubbock, TX 79409
United States

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