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Dodging the Taxman: Firm Misreporting and Limits to Tax Enforcement †

Dodging the Taxman: Firm Misreporting and Limits to Tax Enforcement † 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. (JEL D22, H25, H26, O23 ) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Applied Economics American Economic Association

Dodging the Taxman: Firm Misreporting and Limits to Tax Enforcement †

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Publisher
American Economic Association
Copyright
Copyright © 2017 by the American Economic Association
Subject
Articles
ISSN
1945-7790
eISSN
1945-7790
DOI
10.1257/app.20140495
Publisher site
See Article on Publisher Site

Abstract

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. (JEL D22, H25, H26, O23 )

Journal

American Economic Journal: Applied Economics – American Economic Association

Published: Apr 1, 2017

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