The intervention of the government in the economy generates numerous
points of conflict between private and public interests, which create
favorable environment for corruption against the background of lacking
institutional and administrative capacity and traditions. Corruption and
the hidden economy, in their turn, are linked into a vicious circle for
re-distribution of the country’s economic resources outside the formal
institutions of the market and the democratic government. The hidden
economy expands not just because of the level of tax and social security
rates but rather as a result of the inefficient and arbitrary application of
tax and regulatory regimes and the existence of corruption.
Corruption strongly distorts the business environment like an arbitrary
and non-transparent tax; it leads to lower efficiency and benefits from
public services, creating incentives for companies to enter the hidden
economy. When corruption turns into a systemic problem, i.e. when
everybody perceives it as an integral part of business rules, it turns into
an effective tool for resolving private problems but the negative public
effects remain: larger hidden economy, deteriorating public services, and
loss of economic resources. In this case, the public cost of corruption
by far outweighs the economically measurable private benefits from
corrupt deals: there is a waste of social capital and the public loses its
trust in the rule of law and its equitable enforcement. Thus corruption
creates conditions and incentives for the emergence of a considerable
hidden economy. Participants in the hidden economy try to preserve
the existing status quo to their benefit through corruption pressure and
corrupt deals and thus they close the vicious circle. Corruption strongly
erodes the opportunities for economic growth and, at the same time,
makes it irrational and inefficient for individual institutions, organizations
or citizens to counteract on their own.
The Anti-corruption Action Plan (1998) of Coalition 2000