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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 Info

Listed author(s):
  • 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.

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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/

More information through EDIRC

Keywords: Financial constraints; Tax evasion; Legal system efficiency.;

Find related papers by 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

This paper has been announced in the following NEP Reports:

References listed on IDEAS
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  1. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 1999. "The Quality of Government," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(1), pages 222-279, April.
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  3. Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 1998. "Regulatory Discretion and the Unofficial Economy," American Economic Review, American Economic Association, vol. 88(2), pages 387-392, May.
  4. Blackburn, Keith & Bose, Niloy & Capasso, Salvatore, 2012. "Tax evasion, the underground economy and financial development," Journal of Economic Behavior & Organization, Elsevier, vol. 83(2), pages 243-253.
  5. Jappelli, Tullio & Pagano, Marco & Bianco, Magda, 2005. "Courts and Banks: Effects of Judicial Enforcement on Credit Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(2), pages 223-244, April.
  6. 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.
  7. Simon Johnson & Daniel Kaufman & Andrei Shleifer, 1997. "The Unofficial Economy in Transition," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(2), pages 159-240.
  8. Djankov, Simeon & McLiesh, Caralee & Shleifer, Andrei, 2007. "Private credit in 129 countries," Journal of Financial Economics, Elsevier, vol. 84(2), pages 299-329, May.
  9. Axel Dreher & Friedrich Schneider, 2010. "Corruption and the shadow economy: an empirical analysis," Public Choice, Springer, vol. 144(1), pages 215-238, July.
  10. Friedrich Schneider & Dominik Enste, 1999. "Shadow Economies Around the World - Size, Causes, and Consequences," CESifo Working Paper Series 196, CESifo Group Munich.
  11. Schneider Friedrich, 2010. "The Influence of Public Institutions on the Shadow Economy: An Empirical Investigation for OECD Countries," Review of Law & Economics, De Gruyter, vol. 6(3), pages 441-468, December.
  12. 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.
  13. Safavian, Mehnaz & Sharma, Siddharth, 2007. "When do creditor rights work?," Journal of Comparative Economics, Elsevier, vol. 35(3), pages 484-508, September.
  14. Giombini Germana & Teobaldelli Désirée, 2010. "L'impatto dell'evasione fiscale e della qualità del sistema legale sulla difficoltà di accesso al credito," Rivista italiana degli economisti, Società editrice il Mulino, issue 1, pages 143-168.
  15. 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.
  16. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
  17. repec:hrv:faseco:30747160 is not listed on IDEAS
  18. Friedman, Eric & Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 2000. "Dodging the grabbing hand: the determinants of unofficial activity in 69 countries," Journal of Public Economics, Elsevier, vol. 76(3), pages 459-493, June.
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  20. Safavian, Mehnaz & Sharma, Siddharth, 2007. "When do creditor rights work?," Policy Research Working Paper Series 4296, The World Bank.
  21. repec:hrv:faseco:30728045 is not listed on IDEAS
  22. Désirée Teobaldelli, 2011. "Federalism and the shadow economy," Public Choice, Springer, vol. 146(3), pages 269-289, March.
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