How Public and Private Institutions Can Partner for Effective Policies Targeting Grey Economy and Corruption
This paper outlines the result of the consultations, which the Center for the Study of Democracy held with representatives of business and government on the feasibility of public-private partnerships in promoting a level paying field in Bulgaria. Its findings seek to inform further discussions with Bulgarian and international stakeholders on the modalities of possible future initiatives in this area on the example of public policy on the grey economy; If the efforts of the Bulgarian government and the business community to reduce the adverse impact of grey economy on the nation’s welfare are to succeed they need to bring on board the experience from successful coalition building for good governance from the non-government sector, based on best international practices. International experience has revealed that there are no easy fixes to pervasive grey economy and corruption. This brief proposes an overview of measures undertaken thus far to tackle the grey economy in Bulgaria and outlines a possible platform for engagement of the business, NGO and government sectors for long-term partnership for leveling the paying field in the country.
This platform should combine the power of the government, the efficiency of the business and the know-how and experience of the civil society in the presence of a strong outside anchor and committed partner – the European Union. Its structure should allow for a combination of broad policy guidelines with focus on specific tangible actions. It should focus on strengthening enforcement, improving public resource management and enhancing business integrity. The platform needs to start with a narrow high impact issue e.g. the use of PPPs and EU funds in infrastructure, tourism or energy.
The grey economy is one of the main constraints to investment and growth in Bulgaria. Different estimates put the size of the grey economy in the country between 20 and 35% of GDP, with some sectors, reporting less than 50% of the actual value of transactions. These hidden revenues create a self-perpetuating pool of corruption payments used to secure anything from tax “breaks” to state capture.
Lower tax and social security rates and increased control intensity introduced by the Bulgarian government since 2003 and continued credit-and FDI-based economic growth have reduced the share of the grey economy by some 30% between 2002 and 2008. As these measures are likely to have one-off, limited impact on the grey economy and related corruption, priority must be given to strengthening enforcement, in particular for severing grey business monopolies’ corrupt access to high-level administration and political officials.