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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

    (The World Bank)

  • John McMillan

    (Stanford University)

  • Christopher Woodruff

    (Univeristy of California 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, Slovakia and Romania. A comparison of cross-country 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 Eastern European countries find that bureaucratic corruption is significantly associated with hiding output. Ó 2000 Elsevier Science S.A. All rights reserved.

Suggested Citation

  • Simon Johnson & Daniel Kaufmann & John McMillan & Christopher Woodruff, 2003. "Why Do Firms Hide? Bribes and Unofficial Activity after Communism," Public Economics 0308004, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwppe:0308004
    Note: Type of Document - Acrobat PDF; pages: 26 ; figures: included
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    References listed on IDEAS

    as
    1. Marcouiller, Douglas & Young, Leslie, 1995. "The Black Hole of Graft: The Predatory State and the Informal Economy," American Economic Review, American Economic Association, vol. 85(3), pages 630-646, June.
    2. Maria Lacko, 1999. "Do Power Consumption Data Tell the Story? - Electricity Intensity and Hidden Economy in Post-Socialist Countries," Budapest Working Papers on the Labour Market 9902, Institute of Economics, Centre for Economic and Regional Studies.
    3. Shleifer, Andrei, 1997. "Government in transition," European Economic Review, Elsevier, vol. 41(3-5), pages 385-410, April.
    4. Simon Johnson & John McMillan & Christopher Woodruff, 1999. "Contract Enforcement in Transition," CESifo Working Paper Series 211, CESifo.
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    6. Frye, Timothy & Shleifer, Andrei, 1997. "The Invisible Hand and the Grabbing Hand," American Economic Review, American Economic Association, vol. 87(2), pages 354-358, May.
    7. Loayza, Norman V., 1996. "The economics of the informal sector: a simple model and some empirical evidence from Latin America," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 45(1), pages 129-162, December.
    8. Enste, Dominik & Schneider, Friedrich, 1998. "Increasing Shadow Economies all over the World - Fiction or Reality?," IZA Discussion Papers 26, Institute of Labor Economics (IZA).
    9. Andrei Shleifer & Robert W. Vishny, 1994. "Politicians and Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 995-1025.
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    11. Simon Johnson & Daniel Kaufman & Andrei Shleifer, 1997. "The Unofficial Economy in Transition," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(2), pages 159-240.
    12. James Andreoni & Brian Erard & Jonathan Feinstein, 1998. "Tax Compliance," Journal of Economic Literature, American Economic Association, vol. 36(2), pages 818-860, June.
    13. Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 1998. "Regulatory Discretion and the Unofficial Economy," American Economic Review, American Economic Association, vol. 88(2), pages 387-392, May.
    14. Eric Friedman & Simon Johnson & Daniel Kaufmann & Pablo Zoido-Lobaton, 1999. "Dodging the Grabbing Hand: The Determinants of Unofficial Activity in 69," Departmental Working Papers 199921, Rutgers University, Department of Economics.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    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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