Why Do Firms Evade Taxes? The Role of Information Sharing and Financial Sector Outreach

Tax evasion is a widespread phenomenon across the globe and even an important factor in the ongoing sovereign debt crisis. We show that firms in countries with better credit information-sharing systems and higher branch penetration evade taxes to a lesser degree. This effect is stronger for smaller firms, firms in smaller cities and towns, firms in industries relying more on external financing, and firms in industries and countries with greater growth potential. This effect is robust to instrumental variable analysis, controlling for firm fixed effects in a smaller panel data set of countries, and many other robustness tests.