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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

  • 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
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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

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  18. 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.
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  21. Safavian, Mehnaz & Sharma, Siddharth, 2007. "When do creditor rights work?," Policy Research Working Paper Series 4296, The World Bank.
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