The spillover effects of crime on firm tax evasion Providing an empirical argument for negative reciprocal behaviour against the state

This paper uses firm-level survey data to explore whether the extent to which firms perceive taxes and crime as impediments to their operations and growth (perceived constraints) affects firm tax evasion. To rule out spurious covariation, I use reported crime incidences as an instrumental variable. I establish a negative effect of perceived constraints on sales reported for tax purposes. The effect is large and amounts to a drop in reported sales of 3.4-13.6% in the preferred specification. I hypothesise that this result is best explained by negative reciprocal behaviour against the state. The result is robust when adding a second instrument (Power Outages) and different controls