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Why Do Firms Hide? Bribes and Unofficial Activity After Communism

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by S. Johnson, D. Kaufmann, J. McMillan, and C. Woodruff (2000)

The 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. The firm-level regressions for the Eastern European countries find that bureaucratic corruption is significantly associated with hiding output.

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