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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?

  • Germana Giombini

    ()

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

  • Désirée Teobaldelli

    ()

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

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.

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File URL: http://www.econ.uniurb.it/RePEc/urb/wpaper/WP_12_07.pdf
File Function: First version, 2012
Download Restriction: no

Paper provided by University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini in its series Working Papers with number 1207.

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Length: 18 pages
Date of creation: 2012
Date of revision: 2012
Handle: RePEc:urb:wpaper:12_07
Contact details of provider: Web page: http://www.econ.uniurb.it/

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  1. Bianco, Magda & Jappelli, Tullio & Pagano, Marco, 2002. "Courts and Banks: Effects of Judicial Enforcement on Credit Markets," CEPR Discussion Papers 3347, C.E.P.R. Discussion Papers.
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  9. Andrei Shleifer & Robert W. Vishny, 1998. "The Quality of Government," Harvard Institute of Economic Research Working Papers 1847, Harvard - Institute of Economic Research.
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  11. Gatti, Roberta & Honorati, Maddalena, 2007. "Informality among Formal Firms: Firm-level, Cross-country Evidence on Tax Compliance and Access to Credit," CEPR Discussion Papers 6597, C.E.P.R. Discussion Papers.
  12. Antunes, Antonio R. & Cavalcanti, Tiago V. de V., 2007. "Start up costs, limited enforcement, and the hidden economy," European Economic Review, Elsevier, vol. 51(1), pages 203-224, January.
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  16. Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 1998. "Regulatory Discretion and the Unofficial Economy," American Economic Review, American Economic Association, vol. 88(2), pages 387-92, May.
  17. Era Dabla-Norris & Andrew Feltenstein, 2005. "The underground economy and its macroeconomic consequences," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 8(2), pages 153-174.
  18. Safavian, Mehnaz & Sharma, Siddharth, 2007. "When do creditor rights work?," Policy Research Working Paper Series 4296, The World Bank.
  19. Désirée Teobaldelli, 2011. "Federalism and the shadow economy," Public Choice, Springer, vol. 146(3), pages 269-289, March.
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