Why Do Firms Evade Taxes? The Role of Information Sharing and Financial Sector Outreach

T.H.L. Beck, C. Lin, Y. Ma

Research output: Working paperDiscussion paperOther research output

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Abstract

Informality is a wide-spread phenomenon across the globe. We show that firms in countries with better information sharing systems and greater financial sector outreach evade taxes to a lesser degree, an effect that is stronger for smaller firms, firms in smaller cities and towns, and firms in industries relying more on external financing, with higher liquidity needs and with greater growth potential. However, it is variation in firm size that dominates firm variation in location and industry variation in explaining cross-firm and cross-country variation in tax evasion. This effect is robust to controlling for an array of other measures of the financial and institutional environment firms face. The effect is also robust to controlling for fixed firm effects in a smaller panel dataset of Central and Eastern European countries many of which introduced credit registries or upgraded them in the early 2000s.
Original languageEnglish
Place of PublicationTilburg
PublisherFinance
Number of pages59
Volume2010-93
Publication statusPublished - 2010

Publication series

NameCentER Discussion Paper
Volume2010-93

Fingerprint

Tax
Information sharing
Outreach
Financial sector
Industry
Firm effects
Firm size
Registry
Tax evasion
Central and Eastern European countries
Small firms
Liquidity
External financing
Informality
Institutional environment
Globe
Credit

Keywords

  • Formal and informal sector
  • tax evasion
  • financial sector development

Cite this

Beck, T. H. L., Lin, C., & Ma, Y. (2010). Why Do Firms Evade Taxes? The Role of Information Sharing and Financial Sector Outreach. (CentER Discussion Paper; Vol. 2010-93). Tilburg: Finance.
Beck, T.H.L. ; Lin, C. ; Ma, Y. / Why Do Firms Evade Taxes? The Role of Information Sharing and Financial Sector Outreach. Tilburg : Finance, 2010. (CentER Discussion Paper).
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Beck, THL, Lin, C & Ma, Y 2010 'Why Do Firms Evade Taxes? The Role of Information Sharing and Financial Sector Outreach' CentER Discussion Paper, vol. 2010-93, Finance, Tilburg.

Why Do Firms Evade Taxes? The Role of Information Sharing and Financial Sector Outreach. / Beck, T.H.L.; Lin, C.; Ma, Y.

Tilburg : Finance, 2010. (CentER Discussion Paper; Vol. 2010-93).

Research output: Working paperDiscussion paperOther research output

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N2 - Informality is a wide-spread phenomenon across the globe. We show that firms in countries with better information sharing systems and greater financial sector outreach evade taxes to a lesser degree, an effect that is stronger for smaller firms, firms in smaller cities and towns, and firms in industries relying more on external financing, with higher liquidity needs and with greater growth potential. However, it is variation in firm size that dominates firm variation in location and industry variation in explaining cross-firm and cross-country variation in tax evasion. This effect is robust to controlling for an array of other measures of the financial and institutional environment firms face. The effect is also robust to controlling for fixed firm effects in a smaller panel dataset of Central and Eastern European countries many of which introduced credit registries or upgraded them in the early 2000s.

AB - Informality is a wide-spread phenomenon across the globe. We show that firms in countries with better information sharing systems and greater financial sector outreach evade taxes to a lesser degree, an effect that is stronger for smaller firms, firms in smaller cities and towns, and firms in industries relying more on external financing, with higher liquidity needs and with greater growth potential. However, it is variation in firm size that dominates firm variation in location and industry variation in explaining cross-firm and cross-country variation in tax evasion. This effect is robust to controlling for an array of other measures of the financial and institutional environment firms face. The effect is also robust to controlling for fixed firm effects in a smaller panel dataset of Central and Eastern European countries many of which introduced credit registries or upgraded them in the early 2000s.

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Beck THL, Lin C, Ma Y. Why Do Firms Evade Taxes? The Role of Information Sharing and Financial Sector Outreach. Tilburg: Finance. 2010. (CentER Discussion Paper).