This paper deals with the relationship between regulatory compliance, bureaucratic corruption, lobbying and the industrial structure of a country. We show that lobbying and bureaucratic corruption can coexist at the macro level when we allow for heterogeneity in firm size. Countries with similar level of development are often characterized by very different industrial structures: we show the implications this has for the level of compliance, corruption and lobbying in that country. Welfare implications of our model point toward encouraging policies that support the small business sector of an economy and toward exible regulatory policies meant to suppress regulation for small enough firms.
 

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