The effects of tax evasion and the inefficiency of the legal system on firms? financial constraints: are they complements or substitutes?

Germana Giombini and Désirée Teobaldelli

No 1207, Working Papers from University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini

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.

Keywords: Financial constraints; Tax evasion; Legal system efficiency. (search for similar items in EconPapers)
JEL-codes: D2 G3 H26 K4 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2012, Revised 2012
New Economics Papers: this item is included in nep-acc, nep-iue and nep-pbe
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