Are Innovating Firms Victims or Perpetrators? Tax Evasion, Bribe Payments, and the Role of External Finance in Developing Countries

This paper investigates corruption and tax evasion and their firm-level determinants across 25,000 firms in 57 countries, a large fraction of which are small and medium enterprises in developing countries. Firms that pay more bribes also evade more...

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Bibliographic Details
Main Authors:	Ayyagari, Meghana, Demirgüç-Kunt, Asli, Maksimovic, Vojislav
Format:	Policy Research Working Paper
Language:	English
Published:	2012
Subjects:	ACCESS TO CREDIT AGENCY PROBLEM ANTI-CORRUPTION ANTICORRUPTION ASSETS ASYMMETRIC INFORMATION BANK ACCESS BANK FINANCING BANK LOAN BANK POLICY BANKING SECTOR BANKS BIASES BORROWING BRIBE BRIBERY BRIBES BRIBING BUSINESS ACTIVITIES BUSINESS ASSOCIATIONS BUSINESS PEOPLE CHAMBERS OF COMMERCE CHECKS CONFIDENCE COOPERATIVES CORPORATE FINANCE CORPORATE GOVERNANCE CORPORATE TAX CORPORATE TAX RATES CORPORATE TAXES CORRUPT CORRUPT OFFICIAL CORRUPT OFFICIALS CORRUPTION CORRUPTION ACTS CORRUPTION PERCEPTION CORRUPTION PERCEPTION INDEX CREDIBILITY CREDITORS CRIME CRIMINAL CRIMINALS DEBT DEBT STRUCTURE DEVELOPING COUNTRIES DEVELOPMENT FINANCE DISPUTE RESOLUTION DUMMY VARIABLE DUMMY VARIABLES EARNINGS ECONOMIC ACTIVITY ECONOMIC DEVELOPMENT ECONOMIC GROWTH EDUCATION LEVEL ELECTRICITY EMERGING MARKETS ENTERPRISE PERFORMANCE ENTREPRENEUR ENTREPRENEURS EQUIPMENT EXCHANGE RATE EXPENDITURES EXPORTER EXPORTERS EXTERNAL FINANCE EXTERNAL FINANCING EXTORTION FINANCIAL DEVELOPMENT FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIARIES FINANCIAL INTERMEDIATION FINANCIAL SECTOR REFORM FINANCIAL SYSTEM FIRM PERFORMANCE FOREIGN FIRMS FORMAL BANK FORMAL ECONOMY FORMAL FINANCE GIFTS GOVERNANCE ISSUES GOVERNMENT CORRUPTION GOVERNMENT OFFICIALS GOVERNMENT REGULATION GOVERNMENT REGULATIONS IDS INCOME CATEGORIES INCOME GROUP INCOME LEVELS INFORMAL FINANCE INFORMAL FINANCING INITIATIVE INSTRUMENT INTERNATIONAL BANK INVESTMENT CLIMATE INVESTMENT FUND JUSTICE LAWS LEGAL CONSTRAINTS LEVEL PLAYING FIELD LICENSES LOAN MARGINAL TAX RATES MONEYLENDER OBSTACLES TO GROWTH OPERATING COSTS OPTIMAL DEBT STRUCTURE OVERDRAFT OVERDRAFT FACILITY OWNERSHIP STRUCTURE OWNERSHIP STRUCTURES PERSONAL GAIN POLICE POLITICAL CORRUPTION POLITICAL ECONOMY POLITICIANS PRIVATE CREDIT PRIVATE GAIN PRIVATE PARTIES PRIVATE SECTOR PROFIT MARGIN PROFIT MARGINS PROFITABILITY PROPERTY RIGHTS PROPRIETORSHIPS PUBLIC PUBLIC ECONOMICS PUBLIC FINANCE PUBLIC FINANCES PUBLIC OFFICIALS PUBLIC SECTOR PUBLIC SECTOR REFORM REFORM PROGRAMS REINVESTMENT REINVESTMENT RATES REVENUE COLLECTION SALES GROWTH SALES REVENUE SELF-FINANCE SHADOW ECONOMY SHAREHOLDERS SOCIAL CAPITAL SOCIAL SECURITY STOCK MARKET TAX TAX AVOIDANCE TAX BURDEN TAX COLLECTION TAX COMPLIANCE TAX EVASION TAX RATES TAX REGULATION TAX REPORTING TAXATION TAXPAYER COMPLIANCE TAXPAYERS TELEPHONE LINE THEFT TRANSACTION TRANSITION COUNTRIES TRANSITION ECONOMIES TRANSPARENCY VIOLENCE WORKING CAPITAL
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20100729092336 http://hdl.handle.net/10986/3873

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Summary:	This paper investigates corruption and tax evasion and their firm-level determinants across 25,000 firms in 57 countries, a large fraction of which are small and medium enterprises in developing countries. Firms that pay more bribes also evade more taxes. Corruption acts as a tax on innovation, particularly that of small and young firms. Innovating firms pay a larger percentage of their revenues in bribes to government officials than non-innovating firms. They do not, however, pay more protection money to private parties than other firms. Comparing the magnitudes of bribes and taxes evaded, innovating firms and firms that use formal finance are more likely to be net victims. The findings point to the challenges facing innovators in developing countries and the role of banks in curbing corruption and tax evasion.

Are Innovating Firms Victims or Perpetrators? Tax Evasion, Bribe Payments, and the Role of External Finance in Developing Countries

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