Informality and Bank Credit: Evidence from Firm-Level Data

April 1, 2008

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Junko Koeda, and Era Dabla-Norris. Informality and Bank Credit: Evidence from Firm-Level Data, (USA: International Monetary Fund, 2008) accessed December 3, 2024

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.

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

Keywords: Informal firm, Sales growth, Working capital, WP

Publication Details

Pages:

37
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2008/094
Stock No:

WPIEA2008094
ISBN:

9781451869552
ISSN:

1018-5941

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