Tax Evasion and Financial Development under Asymmetric Information in Credit Markets

Jang-Ting Guo and Fu-Sheng Hung (fshung@nccu.edu.tw)
Additional contact information
Fu-Sheng Hung: National Chengchi University, Taiwan

No 201810, Working Papers from University of California at Riverside, Department of Economics

Abstract: Recent empirical studies have documented that the incidence of firms' tax evasion on their sales is negatively correlated with the country's level of financial development. Our analysis shows that this stylized fact can be theoretically accounted for within a small-open-economy model of optimal tax enforcement under asymmetric information in credit markets. In an economy with a more developed financial sector that exhibits smaller agency costs, we find that the government will raise its optimal probability of tax auditing, which in turn leads to more tax compliance. It follows that financial development and tax evasion are inversely related, as observed in the actual data.

Keywords: Tax Evasion; Financial Development; Asymmetric Information; Credit Rationing. (search for similar items in EconPapers)
JEL-codes: D82 H26 H32 (search for similar items in EconPapers)
Date: 2018-05
New Economics Papers: this item is included in nep-acc, nep-iue, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://economics.ucr.edu/repec/ucr/wpaper/201810.pdf First version, 2018 (application/pdf)

Related works:
Journal Article: Tax evasion and financial development under asymmetric information in credit markets (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ucr:wpaper:201810

Access Statistics for this paper

More papers in Working Papers from University of California at Riverside, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Kelvin Mac (kelvin.mac@ucr.edu).