Are Politically Connected Firms More Likely to Evade Taxes? Evidence from Tunisia

Abstract

Are politically connected firms more likely to evade taxes? Using tax, social security, and customs records from Tunisia in which firms owned by former president Ben Ali and his family are identified, this paper demonstrates that connected firms were more likely to evade taxes. Ceteris paribus, connected firms are 4.6% more likely not to submit a tax declaration in spite of registering workers and/or customs transactions and 8.4% more likely to report anomalously low sales when submitting a tax declaration. JEL Codes: H26, D22, E26Are politically connected firms more likely to evade taxation? The jury is out, in spite of the prevalence of political connections (Faccio 2006) and their association with anticompetitive practices (Claessens et al. 2008;Faccio et al. 2006; Mitten and Johnson 2003;Rijkers et al. 2014b). The question is especially relevant for developing countries, since lackluster revenue mobilization (Slemrod and Yithzaki 2002) and problematic state-business relationships are both symptoms and causes of underdevelopment.

Does Democratisation Promote Competition? Evidence from Indonesia*

“…Our study builds on and complements different strands of literature. By assessing which industry characteristics are associated with a greater prevalence of politically connected firms and quantifying the industry-level spillovers of anticompetitive practices, we contribute to the literature on politically connected firms (Fisman, 2001;Faccio, 2006;Ferguson and Voth, 2008;Johnson and Mitton, 2003;Khwaja and Mian, 2005;Rijkers, Arouri, and Baghdadi, 2017;Raballand, 2017, Rijkers, Freund andNucifora, 2017).…”