The Effect of External Debt on Tax Avoidance: Evidence from Mongolia

Abstract

This study aims to investigate the effect of state external debt on tax avoidance among operating entities in Mongolia. We analyze financial statement data from 62,282 records of 15,571 unique entities, which continuously operated and submitted their statements for the consecutive years of 2013-2016. Additionally, we incorporate state external debt data for Mongolia. The estimation results reveal that total external debt, as well as both public and private sector total external debt and long-term external debt, are significantly negatively associated with tax avoidance in the sampled entities. In contrast, short-term debt is positively associated with tax avoidance. To clarify the industry effect on these results, we conduct additional tests. The findings are mixed among various sectors, with the exception of the mining industry.