Advanced Search
MyIDEAS: Login

The Inequality of Influence

Contents:

Author Info

  • Joel Hellman

    (The World Bank)

  • Daniel Kaufmann

    (The World Bank Institute)

Abstract

This paper develops a proxy measure of the inequality of influence on the basis of survey evidence from 2002 Business Environment and Enterprise Performance Survey (BEEPS) conducted among 6,500 firms in 27 transition countries. We refer to the resulting inequality as crony bias in the political system that can be measured at both the firm and country level. We examine the impact of crony bias at both the firm and country levels on three indicators of institutional subversion: 1) perceptions of and interaction with courts; 2) security of property rights; 3) tax compliance; and 4) bribery. We find a consistent pattern in which the inequality of influence has a strongly negative impact on assessments of public institutions that ultimately affects the behavior of firms towards those institutions. Crony bias at both the firm and the country levels is associated with a significantly more negative assessment of the fairness and impartiality of courts and the enforceability of court decisions. Further, firms that report crony bias are significantly less likely to use courts to resolve business disputes. Such firms are shown to have less secure property rights than more influential firms. We also find that crony bias is associated with lower levels of tax compliance and significantly higher levels of bribery. The evidence suggests that the inequality of influence not only damages the credibility of institutions among weak firms, but affects the likelihood that they will use and provide tax resources to support such institutions. By withholding tax revenues, paying bribes, and avoiding courts, these firms ensure that such state institutions are likely to remain weak and subject to capture by the more influential. The inequality of influence thus appears to generate a self-reinforcing dynamic in which institutions are subverted further strengthening the underlying political and economic inequalities.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://128.118.178.162/eps/dev/papers/0308/0308005.pdf
Download Restriction: no

Bibliographic Info

Paper provided by EconWPA in its series Development and Comp Systems with number 0308005.

as in new window
Length: 38 pages
Date of creation: 27 Aug 2003
Date of revision:
Handle: RePEc:wpa:wuwpdc:0308005

Note: Type of Document - Acrobat PDF; pages: 38
Contact details of provider:
Web page: http://128.118.178.162

Related research

Keywords: transition economies; crony bias; bribery; corruption; governance; tax compliance; courts; property rights; public institutions;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Irina Slinko & Evgeny Yakovlev & Ekaterina Zhuravskaya, 2004. "Laws for Sale: Evidence from Russia," Economics Working Papers 0046, Institute for Advanced Study, School of Social Science.
  2. Bignebat, C. & Gouret, F., 2006. "Which Firms Have a Soft Loan ? Managers' Believes in a Cross-Country Survey in Transition Economies," Working Papers MOISA 200603, UMR MOISA : March├ęs, Organisations, Institutions et Strat├ęgies d'Acteurs : CIHEAM-IAMM, CIRAD, INRA, Montpellier SupAgro, IRD - Montpellier, France.
  3. Daniel Kaufmann & Aart Kraay & Massimo Mastruzzi, 2003. "Governance Matters III: Governance Indicators for 1996-2002," Development and Comp Systems 0308001, EconWPA.
  4. Daniel Kaufmann, 2004. "Governance Redux: The Empirircal Challenge," Law and Economics 0405001, EconWPA.
  5. Evgeny Yakovlev & Ekaterina Zhuravskaya, 2006. "State Capture: From Yeltsin to Putin," Working Papers w0094, Center for Economic and Financial Research (CEFIR).
  6. Alexander Smajgl, 2004. "Modelling the effect of learning and evolving rules on the use of common-pool resources," Computing in Economics and Finance 2004 178, Society for Computational Economics.
  7. Kaufmann, Daniel & Kraay, Aart & Mastruzzi, Massimo, 2003. "Government matters III : governance indicators for 1996-2002," Policy Research Working Paper Series 3106, The World Bank.
  8. Clarke, George R. G., 2005. "Do government policies that promote competition encourage or discourage new product and process development in low and middle-income countries?," Policy Research Working Paper Series 3471, The World Bank.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpdc:0308005. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.