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Why do firms hide? Bribes and unofficial activity after Communism

Author

Listed:
  • Simon Johnson

    (Sloan School of Management, MIT)

  • Daniel Kaufmann

    (World Bank)

  • John McMillan

    (Stanford University)

  • Christopher Woodruff

    (University of California at San Diego)

Abstract

Our survey of private manufacturing firms finds the size of hidden “unofficial” activity to be much larger in Russia and Ukraine than in Poland, the Slovak Republic and Romania. A comparison of crosscountry 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 east European countries find that bureaucratic corruption is significantly associated with hiding output.

Suggested Citation

  • Simon Johnson & Daniel Kaufmann & John McMillan & Christopher Woodruff, 1999. "Why do firms hide? Bribes and unofficial activity after Communism," Working Papers 42, European Bank for Reconstruction and Development, Office of the Chief Economist.
    • Handle: RePEc:ebd:wpaper:42
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    File URL: http://www.ebrd.com/pubs/econo/wp0042.pdf
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    More about this item

    Keywords

    corruption; taxation; legal system; unofficial economy;
    All these keywords.

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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