monopolies are likely to receive more support.
TABLE 5
TABLE 6
That said, the results in Tables 5 and 6 must be treated with caution, as there may be
other reasons why firms which are more taxable receive more state support. For example,
collective-action theory suggests that large enterprises may find it easier to deal with state
officials than do small firms. Further, while roughly consistent with all but the “de Soto”
model in the previous section, the regressions in Tables 5 and 6 do little to identify why more
taxable firms might receive more support. To identify the role of commitment problems and
efficiency of taxation, we need to look at patterns of revenue hiding across firms.
The fact that two thirds of firms report some level of revenue hiding, as indicated in
Table 4, suggests that business-state relations in postcommunist countries may suffer either
from the inability of the state to commit to an efficient tax schedule, or from inefficiencies
in taxation. Tables 7 and 8 further explore this possibility by reporting the results of OLS
and ordered-probit regressions of our various measures of state support on the proportion of
revenues hidden from tax authorities.
A note on identification: The theory outlined in the previous section assumes that the
ruler observes the taxability of economic activity.
More practically, state officials observe
characteristics of firms and sectors which are correlated with taxability, and thus with the
degree of revenue hiding in the case when the state has no commitment power.
The dis-
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Convention