undeclared revenues, opening the door to penalties or informal payments required by tax officials. Furthermore, our findings suggest that the magnitude of the relationship between the demand side bribe payments and tax evasion is twice as large as found in previous studies not differentiating between bribe behavior categories (Ufere et al., 2012; Gauthier and Goyette, 2014; Alm et al., 2016).<sup>7</sup> In public procurement, our results suggest on the contrary that corruption tends to be mainly a supply-side phenomenon, with bribe transactions generally initiated by firms in order to secure public contracts. Firms supplying a bribe without previous request by officials (active bribery) is associated with a 17% increase in the bribe paid to secure a government contract, more than four times the effect observed on the demand side of bribery (passive bribery). The relationship between bribe levels and public contract is also twice as large as the one found by D’Souza and Kaufmann (2013) who did not differentiate between bribe-behavior types.

This paper contributes to the burgeoning literature on corruption at the firm-level by identifying empirically who initiates the act of corruption in different settings, the demand and the supply sides, using a large sample of firms in developing countries.<sup>8</sup> Given the informal nature of corruption, it is very difficult to document and study the contracts between the initiator and the receiver of a corrupt deal. As suggested by Tanzi (1998), identifying whether an act of corruption is briber-initiated or bribee-initiated (i.e. active or passive) has important implications for anti-corruption policies. As far as we know, our paper is the first to examine empirically who initiates corruption in different contexts and across countries. Clarke and Xu (2004) discuss supply and demand of corruption by bribe takers and payers, using WBES data but do not separate the two sources of bribery. More recently, Freund et al. (2015), similarly make use of WBES data, examining how delays in services and time spent with officials relate to bribe solicitation, concentrating on bribe requests by public officials rather than the actual payment of bribes by firms and without differentiating between the demand and supply sides. We examine the extent to which both sides emerge distinctly and are present in certain types of transactions with public officials, particularly taxation and public procurement.

Our findings are qualitatively robust to various methodologies, specifications, and

> 7In Uganda, Gauthier and Goyette (2014) show that negotiation takes place over bribes and tax payments, where the amount of bribe offered is positively associated with a tax rebate. Using a sample of 32 mainly developed and transition economies, Alm et al. (2016) find that rent extraction by tax drives tax evasion.

> 8The literature on graft activities at the micro-level mainly stems from studies conducted in the early 1990s using firm- and individual-level survey data. Using the World Bank’s Regional Program on Enterprise Development (RPED) 1995 Cameroon survey, Gauthier and Gersovitz (1997) report that business owners are eager to discuss issues related to tax evasion, fiscal privileges, and bribes, with 58% of firms reporting bribe payments made to the tax administration. Using the 1998 Uganda survey, Svensson (2003) shows that a large majority of businesses are bribe payers, and that firms that interact more frequently with state officials are more likely to be requested to pay bribes, while those that are more profitable are extracted larger bribes.

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