Informality and Bank Credit: Evidence from Firm-Level Data

Author/Editor:

Junko Koeda ; Era Dabla-Norris

Publication Date:

April 1, 2008

Electronic Access:

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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. 2008/094

Subject:

Bank credit Banking Credit Legal support in revenue administration Tax administration core functions

English

Publication Date:

April 1, 2008

ISBN/ISSN:

9781451869552/1018-5941

Stock No:

WPIEA2008094

Pages:

37

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