Dodging the Taxman: Firm Misreporting and Limits to Tax Enforcement / Paul Carrillo, Dina Pomeranz, Monica Singhal.

Format:

Book

Author/Creator:

Carrillo, Paul.

Contributor:

National Bureau of Economic Research.

Pomeranz, Dina.

Singhal, Monica.

Series:

Working Paper Series (National Bureau of Economic Research) no. w20624.

NBER working paper series no. w20624

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Dodging the Taxman

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2014.

Summary:

Reducing tax evasion is a key priority for many governments, particularly in developing countries. A growing literature has argued that the ability to verify taxpayer self-reports against reports from third parties is critical for modern tax enforcement and the growth of state capacity. However, there may be limits to the effectiveness of third-party information if taxpayers can make offsetting adjustments on less verifiable margins. We present a simple framework to demonstrate the conditions under which this will occur and provide strong empirical evidence for such behavior by exploiting a natural experiment in Ecuador. We find that when firms are notified by the tax authority about detected revenue discrepancies on previously filed corporate income tax returns, they increase reported revenues, matching the third-party estimate when provided. Firms also increase reported costs by 96 cents for every dollar of revenue adjustment, resulting in minor increases in total tax collection.

Notes:

Print version record

October 2014.