Who suffers and how much? A two-step decision to bribe: Evidence from firm-level data
In the paper we study the determinants of corruption in the post-communist countries at the firm-level using data obtained from the Business Environment and Enterprise Performance Surveys (BEEPS) that are jointly conducted by the World Bank and the European Bank for Reconstruction and Development (EBRD). Our aim is to determine who pays and how much, thereby, to gain knowledge on the corruption mechanism on the firm level.
Data/Methods
Our sample consists of 55 000 companies from the 29 countries from the region of Central and Eastern Europe surveyed over the period 2002-2014.
In our empirical study we use two variables as our measures of corruption: corruption perception as an obstacle to doing business and the actual bribe tax payments as declared by the firms. We also show, that firms refusing to answer and claiming not to know the answers do not differ in terms of bribe payments. Furthermore, in order to test for robustness, we model this mechanism using a Heckman selection model as a two-step decision, first whether to engage in dealings with state officials, second how much is actually paid as a fraction of total firm sales.
Results
The econometric analysis of both sets of answers show that having controlled for other factors, the amount of corruption is related mainly to the time spent with officials dealing with regulations and inspections. We argue that the firms spending more time dealing with regulations have a higher corruption obstacles perception and are forced to make significantly higher bribe payments.
Our findings have significant policy implications. We argue that it is essential to simplify administrative procedures by reducing the number and eliminating the direct contacts of firms with officials.