Table 6: Results of the main estimation - alternative inference

||paid|bribe|bribe|burden|inform|al gift|bribe|%sales|
|---|---|---|---|---|---|---|---|---|
||(1)|(2)|(3)|(4)|(5)|(6)|(7)|(8)|
|est. method|lpm|dl|lpm|dl|lpm|dl|lpm|dl|
|dec. index, main|-0.13***|-0.09|-6.01***|-13.10**|-0.68***|-1.50**|-4.55***|-7.50|
||(0.04)|(0.31)|(1.48)|(5.17)|(0.07)|(0.70)|(1.07)|(9.50)|
|exp.<br>decentraliza-|-0.04*|-0.02|-2.37***|-4.66|-0.25***|-0.61**|-3.11***|-3.94|
|tion|||||||||
||(0.02)|(0.16)|(0.65)|(2.84)|(0.03)|(0.24)|(0.46)|(3.33)|
|dec. index, aux.|-0.02|-0.02|-3.08***|-6.51*|-0.29***|-0.83***|-2.83***|-3.17|
||(0.02)|(0.19)|(0.81)|(3.39)|(0.03)|(0.27)|(0.49)|(3.94)|
|standard errors|robust|stand.|robust|stand.|robust|stand.|robust|stand.|
|dataset|GCB|GCB|GCB|GCB|WBES|WBES|WBES|WBES|
|||av.||av.||av.||av.|

Note<sup>∗</sup> - significant at 10% level,<sup>∗∗</sup> - significant at 5% level,<sup>∗∗∗</sup> - significant at 1% level. Dependent variable: columns (1)-(2) - paid bribe; columns (3)-(4) - paid bribe; columns (5)-(6) - informal gift; columns (7)-(8) - bribe%sales (see definitions in Table 2). Estimation methods: columns (1), (3), (5), (7) - OLS on the whole sample (lpm); columns (2), (4), (6), (8) - OLS on the averaged data from the corresponding sample (see Wooldridge (2006)). Standard errors are reported in brackets: columns (1), (3), (5), (7)- heteroscedasticity robust; columns (2), (4), (6), (8) - standard. Other controls included in the regressions are identical to that of in Table 5.

percentage points - in an average country would reduce the average probability of a household paying a bribe by 1.7 percentage points. While this may seem a small number, one should note that the mean probability of paying a bribe in the sample is 11%, and 1.7 percentage points represent more than a 15% decrease in the frequency of bribery among households. As for the bribe burden, empowering local governments by 10 percentage points more would decrease the bribe burden (share of his/her incomes spent on bribes) for an average person by about 0.30 percentage points, which is more than a quarter decrease from an average bribe burden in the sample. The effect of decentralization on frequency and amount of bribery is much stronger for firms than for households. Columns (9) and (12) from Table 5 suggest that a 10 percentage points increase in LG decentralization is associated with 5.5 percentage points decrease in frequency of ”informal gifts” and 0.74 percentage points decrease in share of annual sales alloted to bribery. Finally, 10 percentage points increase in decentralization would raise the corruption perception index in 2007 by 0.5 points, which is equivalent for an average country to moving up by about 12 positions in TI’s country ranking.

In Tables 5 and 6 - raws 2 and 3 (in italic) - we also report the results, when we use other decentralization measures in identical regressions. We consider two additional measures - a widely used in other literature LG expenditure decentralization and an auxiliary decentralization index (see the definitions in Table 4. The effect of LG expenditure decentralization is smaller than the effect of the main decentralization index in all our specifications, even accounting for a higher mean of LG expenditure decentralization. In most specifications, it is also less statistically different from 0 (i.e. t-statistics are smaller). The biggest difference can be seen in the columns (13)-(14), where corruption perception is used as a measure of corruption. There the main decentralization index is shown to have a very significant positive effect, while the effect of LG expenditure decentralization is statistically and economically zero. The behavior of the auxiliary decentralization index is similar to the one of LG expenditure decentralization, which suggests that just decentralizing expenditures 25