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The effects of tax evasion and the inefficiency of the legal system on firms’ financial constraints: are they complements or substitutes?

Author

Listed:
  • Germana Giombini

    () (Department of Economics, Society & Politics, Università di Urbino "Carlo Bo")

  • Désirée Teobaldelli

    () (Department of Law, Università di Urbino "Carlo Bo")

Abstract

This paper analyzes the joint impact of tax evasion and the inefficiency of the legal system on firms’ financial constraints. We find that both variables have a statistically significant effect on the difficulties that firms encounter when trying to access financing and this effect is nonlinear. In particular, tax evasion and the inefficiency of the legal system are substitute as they mitigate each other’s effects on firms’ credit constraints. It means that the negative impact of tax evasion on financial constraints faced by firms decreases in the presence of a lower efficiency of the legal system.

Suggested Citation

  • Germana Giombini & Désirée Teobaldelli, 2012. "The effects of tax evasion and the inefficiency of the legal system on firms’ financial constraints: are they complements or substitutes?," Working Papers 1207, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2012.
    • Handle: RePEc:urb:wpaper:12_07
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    File URL: http://www.econ.uniurb.it/RePEc/urb/wpaper/WP_12_07.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Financial constraints; Tax evasion; Legal system efficiency.;

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • G3 - Financial Economics - - Corporate Finance and Governance
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior

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