Informality among Formal Firms : Firm-level, Cross-country Evidence on tax Compliance and Access to Credit

The authors use firm-level, cross-county data from Investment Climate surveys in 49 developing countries to investigate an important channel through which informality can affect productivity: access to credit and external finance. Informality is measured as self-reported lack of tax compliance in a sample of registered firms that also answered questions on a large set of other characteristics. The authors find that more tax compliance is significantly associated with more access to credit both in OLS and in country fixed effects estimates. In particular, the link between credit and formality is stronger in high-formality countries. This suggests that firms' balance sheets are relatively more informative for financial institutions in environments where signal extraction is a less noisy process. The authors' results are robust to the inclusion of a wide array of correlates and to two-stage estimation.

Bibliographic Details

Main Authors:	Gatti, Roberta, Honorati, Maddalena
Format:	Policy Research Working Paper biblioteca
Language:	English
Published:	World Bank, Washington, DC 2008-01-01
Subjects:	ABSENCE OF CORRUPTION, ACCESS TO CREDIT, ACCESS TO EXTERNAL FINANCE, ACCESS TO FINANCE, ACCESS TO FINANCING, ACCESS TO FORMAL CREDIT, ACCOUNTING, ASSET VALUE, BALANCE SHEETS, BANK COMPETITION, BANK FINANCING, BANK POLICY, BANKS, BIASES, BOOK VALUE, BRIBE, BRIBES, BUSINESS ASSOCIATIONS, CALCULATION, CAPITAL MARKETS, CASH FLOW, CHECKS, CLAIM, COLLATERAL, COLLEGE EDUCATION, CORPORATE TAX RATE, CORRUPTION, CREDIT % NEEDS, CREDIT ACCESS, CREDIT AVAILABILITY, CREDIT BUREAU, CREDIT CARDS, CREDIT COEFFICIENTS, CREDIT CONSTRAINTS, CREDIT INFORMATION, CREDIT LINE, CREDIT MARKET, CREDIT REGISTRY, CREDIT WORTHINESS, DEMAND FOR CREDIT, DEPENDENT, DEPOSIT, DEPOSIT MONEY BANKS, DEVELOPING COUNTRIES, EARNINGS, ECONOMIC DEVELOPMENT, ECONOMIC GROWTH, EMERGING ECONOMIES, EMERGING MARKETS, EQUIPMENT, EQUITY ISSUANCE, EXCLUSION, EXPORTER, EXTERNAL FINANCE, EXTERNAL FINANCING, EXTRA CASH, FAMILY LOANS, FINANCIAL CORPORATION, FINANCIAL DEVELOPMENT, FINANCIAL INSTITUTIONS, FINANCIAL MARKET, FINANCIAL MARKET DEVELOPMENT, FINANCIAL MARKETS, FINANCING NEEDS, FINANCING OBSTACLES, FIRM PERFORMANCE, FIRM SALES, FIXED ASSETS, FOREIGN BANK, FOREIGN BANKS, FOREIGN OWNERSHIP, GOVERNMENT REVENUES, INCOME, INFORMAL CREDIT, INFORMAL ECONOMY, INFORMAL FINANCE, INFORMAL WORKERS, INSTITUTIONAL DEVELOPMENT, INSTRUMENT, INTERNATIONAL BANK, INVESTMENT CLIMATE, LABOR FORCE, LABOR MARKET, LARGE ENTERPRISES, LARGE FIRMS, LEGAL RIGHTS, LIMITED ACCESS, LINE OF CREDIT, LOAN, LOAN SIZES, LOCAL BANK, LOCAL BANKS, LOW INCOME, MACROECONOMICS, MARKET DEVELOPMENT, MARKET SEGMENTATION, MEDIUM ENTERPRISES, MICRO BUSINESS, MIDDLE EAST, MONEY LENDERS, NET PROFITS, NORTH AFRICA, OBSTACLES TO FINANCE, OVERDRAFT, OVERDRAFT FACILITY, OWNERSHIP STRUCTURE, POLITICAL ECONOMY, PRIVATE CREDIT, PRIVATE CREDIT BUREAU, PROBABILITY, PRODUCTIVITY, PROPERTY RIGHTS, PUBLIC CREDIT, PUBLIC ECONOMICS, PUBLIC FINANCES, PUBLIC POLICY, RETURN, SALES, SALES GROWTH, SECONDARY EDUCATION, SECONDARY SCHOOL, SELF-EMPLOYMENT, SHADOW ECONOMIES, SHADOW ECONOMY, SHARE OF PROFITS, SHAREHOLDER, SMALL BUSINESS, SMALLER FIRMS, SOCIAL SECURITIES, SOCIAL SECURITY, SOCIAL SECURITY CONTRIBUTIONS, SOURCE OF INFORMATION, START-UP, SUB-SAHARAN AFRICA, TAX, TAX ADMINISTRATION, TAX BURDEN, TAX CODES, TAX COMPLIANCE, TAX RATE, TAX RATES, TAXATION, TRADE CREDIT, TRADE FINANCING, TRANSACTION, TRANSACTION COSTS, TRANSPARENCY, TRANSPORT, TURNOVER, VALUE OF ASSETS, WORK FORCE, WORKING CAPITAL,
Online Access:	http://documents.worldbank.org/curated/en/2008/01/8935642/informality-among-formal-firms-firm-level-cross-country-evidence-tax-compliance-access-credit http://hdl.handle.net/10986/6444
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