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Does"grease money"speed up the wheels of commerce?

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  • Kaufman, Daniel
  • Shang-Jin Wei

Abstract

If bureaucratic burden and delay are exogenous, a firm may find bribes a helpful way to cut through red tape. According to the"efficient grease"hypothesis, corruption can improve economic efficiency, and,fighting bribery can be counterproductive. This need not be the case. In a general equilibrium in which regulatory burden and delay can be endogenously chosen by rent-seeking bureaucrats, the effective (not just nominal) red tape and bribery may be positively correlated across firms. Using data from three worldwide firm-level surveys, the authors examine the relationship between bribe and payments, management time wasted with bureaucrats, and cost of capital. They find that firms that pay more in bribes are also likely to spend more, not less, management time with bureaucrats, negotiating regulations. They also face a higher, not lower, cost of capital.

Suggested Citation

  • Kaufman, Daniel & Shang-Jin Wei, 1999. "Does"grease money"speed up the wheels of commerce?," Policy Research Working Paper Series 2254, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2254
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    References listed on IDEAS

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    1. Banerjee, A.V., 1997. "A Theory of Misgovernance," Working papers 97-4, Massachusetts Institute of Technology (MIT), Department of Economics.
    2. Shang-Jin Wei, 2000. "How Taxing is Corruption on International Investors?," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 1-11, February.
    3. Bliss, Christopher & Di Tella, Rafael, 1997. "Does Competition Kill Corruption?," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 1001-1023, October.
    4. Rose-Ackerman, Susan, 1975. "The economics of corruption," Journal of Public Economics, Elsevier, vol. 4(2), pages 187-203, February.
    5. Ades, Alberto & Di Tella, Rafael, 1997. "National Champions and Corruption: Some Unpleasant Interventionist Arithmetic," Economic Journal, Royal Economic Society, vol. 107(443), pages 1023-1042, July.
    6. Abhijit V. Banerjee, 1997. "A Theory of Misgovernance," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1289-1332.
    7. Shang-Jin Wei, 1997. "Why is Corruption So Much More Taxing Than Tax? Arbitrariness Kills," NBER Working Papers 6255, National Bureau of Economic Research, Inc.
    8. Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, vol. 64(3), pages 291-303, June.
    9. Pranab Bardhan, 1997. "Corruption and Development: A Review of Issues," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1320-1346, September.
    10. Vito Tanzi, 1998. "Corruption Around the World: Causes, Consequences, Scope, and Cures," IMF Staff Papers, Palgrave Macmillan, vol. 45(4), pages 559-594, December.
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    13. Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 681-712.
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    More about this item

    Keywords

    Public Sector Corruption&Anticorruption Measures; Decentralization; Pharmaceuticals&Pharmacoeconomics; Social Policy; Corruption&Anitcorruption Law; Governance Indicators; Public Sector Corruption&Anticorruption Measures; Corruption&Anitcorruption Law; TF054599-PHRD-KYRGYZ REPUBLIC: WATER MANAGEMENT IMPROVEMENT PROJECT; Pharmaceuticals&Pharmacoeconomics;

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • F20 - International Economics - - International Factor Movements and International Business - - - General

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