Abstract
We test two interesting results that can be obtained from a simplified version of the theoretical model of Shleifer and Vishny (Q J Econ 109(4):995–1025, 1994) that studies bargaining between politicians and managers of state-owned firms. The model suggests that firms with more state ownership tend to pay less in bribes but not have a different experience of costly obstacles imposed on them by politicians. In our full sample, the results suggest that a one percentage increase in state ownership is associated with a $125 reduction in the total annual informal payment of the firm and with a 0.5 % decrease in the probability that a firm will consider corruption to be an obstacle to their current operations. We refine these average relationships by splitting the sample by global region. Only in our Europe and Central Asia sample do we find strong evidence in support of the first result and again we find a significant effect of state ownership on obstacles.
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Notes
It is possible to incorporate an additional constraint on the politician by imposing a political cost of accepting a bribe, which depends on the size of the bribe. Note, however, that it does not change, at least for the case of a constant marginal cost, the main results presented in this section.
In contrast to Shleifer and Vishny (1994), we do not consider the case in which the bribe payment is decided through a bargaining between the politician and the firm’s manager.
The outcome would be different if the bribe payment were defined through bargaining between the politician and the firm’s manager. In this case, detailed in Shleifer and Vishny (1994), resources would be extracted from the Treasury and obstacles would be set according to the condition (6) and the resulting surplus would be divided between the politician and the manager. However, note that our hypothesis does not change the qualitative result on the effect of state ownership on bribe payment and obstacle compared to Shleifer and Vishny (1994).
If we do use bribe / sales as our dependent variable we find no relationship with state ownership and it does not even predict whether bribe / sales was nonzero in probit models. Further, if we create a new variable for bribe amount by multiplying bribe / sales by our variable measuring sales we fail to find a relationship with state ownership. We also fail to find a relationship when we create a new bribe / sales variable by dividing bribe by the sales variable in the dataset. Results available on request.
If we include bribe as an additional control, state ownership is still highly significant and the marginal effect is larger in magnitude (almost 0.9 %).
We are indebted to Ron Davies for this insight.
Dreher et al. (2009) stress the importance of institutional quality in the determination of corruption.
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We are very grateful to Tine Jeppesen who kindly provided us with a cleaned version of the Enterprise Survey firm level dataset. Natalia Andries, Michael Breen, Pertti Haaparanta, the editors, two anonymous referees, and participants in Turku School of Economics’ ACE seminar provided useful comments and suggestions.
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Billon, S., Gillanders, R. State ownership and corruption. Int Tax Public Finance 23, 1074–1092 (2016). https://doi.org/10.1007/s10797-015-9390-z
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DOI: https://doi.org/10.1007/s10797-015-9390-z