Informality and Bank Credit: Evidence from Firm-Level Data

Author/Editor: Dabla-Norris, Era ; Koeda, Junko
Publication Date: April 01, 2008
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: The paper relies on a firm-level data on transition economies to examine the relationship between informality and bank credit. We find evidence that informality is robustly and significantly associated with lower access to and use of bank credit. We also find that higher tax compliance costs reduce firms' reliance on bank credit, while a stronger quality of the legal environment is associated with higher access to credit even for financially opaque informal firms. An interactive term between a country-wide measure of tax compliance costs and the level of informal activity is negative and significant, suggesting that the negative association between informality and bank credit is stronger in countries with weak tax administration.
Series: Working Paper No. 08/94
Subject(s): Bank credit | Transition economies | Tax administration | Economic models

Author's Keyword(s): Bank credit | informality | business environment | Transition countries
Publication Date: April 01, 2008
Format: Paper
Stock No: WPIEA2008094 Pages: 37
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