International Tax and Public Finance

, Volume 26, Issue 1, pp 71–102 | Cite as

Financial constraints and firm tax evasion

  • James Alm
  • Yongzheng LiuEmail author
  • Kewei Zhang


Most analyses of tax evasion examine individual behavior, not firm behavior, given obvious and recognized data issues. We use data from the Business Environment and Enterprise Performance Survey to examine tax evasion at the firm level, focusing on a novel determinant of firm tax evasion: the financial constraints (or credit constraints) faced by the firm. Our empirical results indicate across a range of alternative specifications that more financially constrained firms are more likely to be involved in tax evasion activities, largely because evasion helps them deal with financing issues created by financial constraints. We further show that the effects of financial constraints are heterogeneous across firm ownership, firm age, and firm size. Lastly, we present some suggestive evidence on the possible channels through which the impact of financial constraints on firm tax evasion may operate, including a reduction of information disclosure through the banking system, an increase in the use of cash for transactions, and an increase in bribe activities in exchange for tax evasion opportunities.


Tax evasion Financial constraints Firm-level data 

JEL Classification

E26 G2 H26 



We would like to thank Janina Enachescu and other participants at the 5th International Conference on “The Shadow Economy, Tax Evasion and Informal Labor,” held in Warsaw, Poland, in July 2017, for many helpful comments. This research was supported by the National Natural Science Foundation of China (Nos. 71773128; 71533006) and the Fok Ying Tung Education Foundation (No. 151085). We are especially grateful to two anonymous referees for many helpful comments and suggestions that have substantially improved the paper.

Supplementary material

10797_2018_9502_MOESM1_ESM.docx (108 kb)
Supplementary material 1 (DOCX 107 kb)


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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Department of EconomicsTulane UniversityNew OrleansUSA
  2. 2.School of Finance, China Financial Policy Research CenterRenmin University of ChinaBeijingChina
  3. 3.School of FinanceRenmin University of ChinaBeijingChina
  4. 4.Department of EconomicsBoston UniversityBostonUSA

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