Dodging the Taxman: Firm Misreporting and Limits to Tax Enforcement
American Economic Journal: Applied Economics
vol. 9,
no. 2, April 2017
(pp. 144-64)
(Complimentary)
Abstract
Reducing tax evasion is a priority for many governments. A growing literature argues that verifying taxpayer reports against third-party information is critical for tax collection. However, effectiveness can be limited when tax authorities face constraints to credible enforcement and taxpayers make offsetting adjustments on other margins. We exploit a policy intervention in which Ecuadorian firms were notified about detected revenue discrepancies. Most firms simply failed to respond. Firms that responded increased reported revenue, matching the discrepancy amount when provided. However, they also increased reported costs by 96 cents per dollar of revenue adjustment, resulting in minor increases in tax collection.Citation
Carrillo, Paul, Dina Pomeranz, and Monica Singhal. 2017. "Dodging the Taxman: Firm Misreporting and Limits to Tax Enforcement." American Economic Journal: Applied Economics, 9 (2): 144-64. DOI: 10.1257/app.20140495Additional Materials
JEL Classification
- D22 Firm Behavior: Empirical Analysis
- H25 Business Taxes and Subsidies including sales and value-added (VAT)
- H26 Tax Evasion and Avoidance
- O23 Fiscal and Monetary Policy in Development
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