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Influence of regulatory burden and involvement of business in corruption on revenue: Grease vs sand effect

Author

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  • Malkina, M.

    (Lobachevsky State University of Nizhni Novgorod, Nizhni Novgorod, Russia)

  • Ovchinnikov, V.

    (Financial Research Institute of the Ministry of Finance of the Russian Federation, Moscow, Russia
    Lobachevsky State University of Nizhni Novgorod, Nizhni Novgorod, Russia)

Abstract

The study is devoted to theoretical analysis and empirical assessment of the impact of bureaucratic burden and participation of firms in corruption on their financial results (in our case, revenue). We test alternative hypotheses about the positive ("grease the wheels") and negative ("sand the wheels") result of legal, illegal and mixed interaction of business with government bodies. Our study is based on the 2014 BEEPS-V data on enterprises of the former Socialist countries and Turkey. We proposed and evaluated three specifications for Cobb-Douglas type models, which included test, control, and instrumental variables. The obtained results evidenced the prevalence of the effect of "grease the wheels" over the effect of "sand the wheels" - separately for corrupt and legal intensive interaction of business with the authorities, where the model of illegal interaction proved to be more effective. At the same time, in the mixed type model, we found the negative effect of the joint influence of bureaucratic barriers and the participation of firms in corruption. We explained this by the double costs for firms when they are plunged into corruption after inefficient interaction with the state bodies, as well as various strategies for such interaction.

Suggested Citation

  • Malkina, M. & Ovchinnikov, V., 2020. "Influence of regulatory burden and involvement of business in corruption on revenue: Grease vs sand effect," Journal of the New Economic Association, New Economic Association, vol. 47(3), pages 40-65.
    • Handle: RePEc:nea:journl:y:2020:i:47:p:40-65
    DOI: 10.31737/2221-2264-2020-47-3-2
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    References listed on IDEAS

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    More about this item

    Keywords

    business; regulation; corruption; efficiency; revenue;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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