Working Paper: CEPR ID: DP2105
Authors: Simon Johnson; John McMillan; Christopher Woodruff
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, Romania and Slovakia. A comparison of cross-country averages shows that managers in Russia and Ukraine face higher effective tax rates, worse official 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 official corruption is significantly associated with hiding output.
Keywords: corruption; unofficial economy
JEL Codes: H26; O17; P35
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher levels of official corruption (D73) | increased rates of underreported sales (J46) |
| firms that report making extralegal payments to officials (P37) | hidden sales (D49) |
| mafia extortion (K42) | hidden activity (Y70) |
| bureaucratic corruption (D73) | firms hide their output (D21) |
| higher tax rates (H29) | firms operate unofficially (J46) |