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

European Banking Center Discussion Paper No. 2010-26

CentER Discussion Paper Series No. 2010-93

59 Pages Posted: 31 Aug 2010  

Thorsten Beck

City University London - Sir John Cass Business School; Tilburg University - European Banking Center, CentER

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

(马跃) Yue Ma

City University of Hong Kong (CityUHK) - Department of Economics & Finance

Multiple version iconThere are 2 versions of this paper

Date Written: August 28, 2010

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.

Keywords: Formal and informal sector, tax evasion, financial sector development

JEL Classification: E26, G2, H26, O17

Suggested Citation

Beck, Thorsten and Lin, Chen and Ma, (马跃) Yue, Why Do Firms Evade Taxes? The Role of Information Sharing and Financial Sector Outreach (August 28, 2010). European Banking Center Discussion Paper No. 2010-26. Available at SSRN: https://ssrn.com/abstract=1668437 or http://dx.doi.org/10.2139/ssrn.1668437

Thorsten Beck (Contact Author)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Tilburg University - European Banking Center, CentER ( email )

PO Box 90153
Tilburg, 5000 LE
Netherlands

Chen Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Yue Ma

City University of Hong Kong (CityUHK) - Department of Economics & Finance ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

HOME PAGE: http://www.cb.cityu.edu.hk/staff/yuema24

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