Credit constraints and corporate tax payments: Evidence from Vietnamese firms

This paper examines the nexus between firms’ financial constraints and their tax payment. We conjecture that financial constraints are strongly associated with firms’ tax planning behaviour. In this process, firms strategically manage to reduce their tax payment in the face of financing constraints. Using a unique data set on Vietnamese private manufacturing small and medium enterprises spanning the 2009–2015 period, we find strong support for this hypothesis. In addition, we find discernible differences in forming strategic tax planning behaviour between two groups of constrained firms: those being discouraged by the financial market and those having loan applications declined by banks. Heterogeneity analysis further sheds light on the credit constraints-tax payment nexus since the negative relationship between credit constraints and corporate tax payments varies across different firms of different characteristics. Obtained findings convey important policy implications on tax administration and bank finance for economic development.