participate in these illicit activities with self-serving officials, move to another jurisdiction, exit the market, or operate in the informal sector.<sup>4</sup> The supply side of corruption has been relatively less explored. In this perspective, rather than being passive respondents to requests, harassment and threats by officials, some firms may actively seek favors, offering bribes and other informal gifts as a strategy to obtain privileges or circumvent regulations (Tanzi, 1998; Myint, 2000; Delavallade, 2012; Ufere et al., 2012; Dixit, 2016).<sup>5</sup> We use firm-level data from the WBES covering 18,005 firms in 75 developing countries. We exploit the presence of information on bribe requests from public officials in various interactions between firms and government,<sup>6</sup> as well as reported bribe payments by firms, to identify the demand and supply sides of corruption. In addition to these distinct bribe-paying behaviors, we categorize non-bribe paying firms into two groups: "incorruptible" are firms non-complying to requests for bribes by officials, and "nonpayers" are firms which neither experienced a request for a bribe nor paid a bribe. We show that firms’ bribe behavior categories are associated with specific firm characteristics. Demand and supply-side bribe payers tend to be firms facing greater informal competition than non-bribe payers. In particular, demand-side bribe payers (passive bribery) tend to be firms with larger capital investments and higher profits and are less likely to have government ownership. Supply-side bribe payers (active bribery) are more likely to be exporting firms with a larger share of foreign ownership as well as larger investments and capital stock value.

With regard to the association between bribing behavior and benefits of illicit transactions, we find that corruption in tax administration tends to be mainly a demand-side phenomenon. Paying a bribe requested by a public official (passive bribery) is associated with a 16 % increase in the share of sales not reported for tax purposes. However, firms supplying a bribe without previous request by officials (active bribery) is not significantly associated with the share of sales not reported for tax purposes. A potential explanation is that otherwise, a firm offering an unsolicited bribe to tax officials would tend to signal regulations and endeavor to increase rent from corruption. In Svensson (2003), model of bargaining with rent maximizing bureaucrats in Uganda, public officials act as price (bribe) discriminators, where bribes are a function of individual firm ability to move. Similarly, in Bai et al. (2019), government officials in Vietnam choose a percentage of a firm’s revenues to extract as bribes, trading off higher bribe income against the increase in the firm’s incentive to move jurisdiction.

> 4Djankov et al. (2002), for instance, find that stricter regulation of the entry of new firms in the market is associated with sharply higher levels of corruption and a greater relative size of the unofficial economy in a cross-section of countries (McChesney, 1987; De Soto, 1989; LaPorta et al., 1998).

> 5Delavallade (2012) show that bribing officials to obtain favors is more often to gain a competitive advantage or for tax evasion purposes. Ufere et al. (2012) document the systematic supply side of corruption among young enterprises in Nigeria. The authors describe entrepreneurs in Nigeria as "merchants of bribery," willfully and actively engaged in a deliberate process of generating bribes for private gain. The literature on "cooperative" corruption vs "coercive" corruption has also focused on the supply side of corruption; especially also the grease the wheel hypothesis (Leff, 1964; Lui, 1985; Lien, 1986; Cadot, 1987; Méon and Weill, 2010).

> 6Tax inspectorate, public agencies for labor and social security, fire and building safety, sanitation/epidemiology, environmental issues, and municipal police.

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