ALTERNATIVE STRATEGIES FOR FIRMS IN OPPRESSIVE AND CORRUPT STATES: INFORMALITY OR FORMALITY VIA BUSINESS ASSOCIATIONS?

"Firms operating in oppressive conditions such as those in the transition countries often take advantage of informality, making unofficial payments to officials and underreporting their sales for tax purposes. This paper argues that business associations may constitute a more transparent, efficient, and formal alternative. Empirical support for the argument is provided based on firm level data on several thousand firms from the Business Environment and Enterprise Performance Surveys in 25 transitions countries for 2002 and 2005. We show that, despite their often rather bad reputation, business associations tend to play a rather positive role, helping firms to reduce both having to make unofficial payments and underreporting of sales for tax purposes."("JEL" D2, D7, L2, P2, P3) Copyright (c) 2009 Western Economic Association International.