We model the interaction between the informal credit market and the act of tax collection by the government; in presence and functioning of the informal credit market, the agents (the tax paying firms) engage in false or sham litigation and deferred tax payments. During the litigation period...

Informality of markets is largely perceived as undesirable. Yet, ample evidence suggests that the informal sector contributes substantially in terms of income and employment in the entire developing world. In this paper, tax evaded income is invested in the informal credit market which in turn...