Tax Avoidance and the Allocation of Credit

Anna Meyendorff

No 150, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: This paper models the credit-seeking behavior of a firm when applying for a bank loan increases the probability of being monitored by the fiscal authorities. Using Russia as an example of an economy with poorly enforced tax payment, I find that if the probability of paying taxes increases as a result of applying for a bank loan, profit maximizing firms will be less likely to borrow at a given rate of interest. In addition, firms with less risky projects will be more likely to drop out of the borrower pool. Finally, the more profitable a firm has been in the past, as measured by the return to its existing investments, the less likely it will be to borrow from a bank to finance a new investment project. In an economy where alternative forms of external capital are few, this disincentive to borrow has significant consequences for the overall level and quality of investment in the economy

JEL-codes: G21 G32 G38 P34 (search for similar items in EconPapers)
Pages: pages
Date: 1998-05-01
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp150.pdf
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp150.pdf [302 Found]--> https://wdi.umich.edu/files/Publications/WorkingPapers/wp150.pdf)

Related works:
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:wdi:papers:1998-150

Access Statistics for this paper

More papers in William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan 724 E. University Ave, Wyly Hall 1st Flr, Ann Arbor MI 48109. Contact information at EDIRC.
Bibliographic data for series maintained by WDI ().