Alternative Strategies for Firms in Oppressive and Corrupt States: Informality or Formality via Business Associations?

Abstract

"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.

Drivers of firm formalization in Vietnam: an attention theory explanation

“…Those that gained access (e.g., Dabla-Norris, Gradstein, and Inchauste2008; Jackle and Li 2006;Nugent and Sukiassyan 2009a;2009b;Porta and Shleifer 2011;Schneider 2007) typically focus on micro firms with fewer than 10 employees. For example, the data in Jackle and Li (2006) comes from micro enterprises in Peru.…”

“…For example, the data in Jackle and Li (2006) comes from micro enterprises in Peru. The data in DablaNorris, Gradstein and Inchauste comes from China, India, Brazil, Indonesia, and Russia, while Nugent and Sukiassyan (2009a) use data from micro firms in Mexico. From a methods point of view, our second contribution is therefore also to include SMEs more broadly in our analysis.…”

Taxing the Informal Economy: Challenges, Possibilities and Remaining Questions

“…Thus membership of business associations can be a viable substitute for remaining informal. Research finds that in transition countries they constitute a transparent, formal and efficient alternative to staying informal by helping reduce unofficial payments and bribes and underreporting for tax purposes (Nugent and Sukiassyan 2009). …”

Taxing the Informal Economy: The Current State of Knowledge and Agendas for Future Research

“…The importance of bribes and harassment, alongside taxation and regulation, is similarly emphasised in survey evidence from Tanzania (Fjeldstad, Kolstad, & Nygaard, 2006). 12. Business associations can help overcome some of these empowerment barriers by reducing transaction costs in disputes, protecting property rights, and providing information about markets, making membership in business associations a potentially viable alternative strategy for getting the benefits of formalising (Nugent & Sukiassyan, 2009). 13.…”