Template-type: ReDIF-Paper 1.0
Author-Name: Balde, Racky
Author-Email: balde@merit.unu.edu
Author-Workplace-Name: UNU-MERIT, Maastricht University
Title: Financial development and small firms’ tax compliance in Sub-Saharan Africa
Abstract: Lack of fiscal space in sub-Saharan Africa is a major preoccupation,
	 particularly in the context of shocks. The majority of firms in the
	 region are primarily in the informal sector and consequently do not pay
	 taxes. This paper explores the effect of financial development on small
	 firms’ compliance with value-added tax, profit tax and local tax. It
	 equally explores the mitigating impact of informal finance on financial
	 development’s role in driving small firms’ tax compliance. To
	 demonstrate this, we estimate a recursive trivariate probit model. The
	 results show that financial development increases the likelihood of
	 firms being tax compliant. In contrast, access to informal finance
	 decreases that likelihood. It also emerges that the lower the taxes, the
	 greater the effects of low costs of banks on tax compliance. Another
	 finding is that informal finance mitigates the effect of financial
	 development on small firms’ tax compliance.
Classification-JEL: D22, E26, H26
Keywords: taxation, Africa, financial development, informal finance, informal economy
Series: UNU-MERIT Working Papers
Creation-Date: 20211101
Number: 2021-041
File-URL: https://unu-merit.nl/publications/wppdf/2021/wp2021-041.pdf
File-Format: application/pdf
File-Size: 275 Kb
Handle: RePEc:unm:unumer:2021041