Dodging the taxman
Subtitle: firm misreporting and limits to tax enforcement
By: Paul Carrillo, Dina Pomeranz, Monica Singhal
Contributors: Pomeranz, Dina, author; Singhal, Monica, author; Harvard Business School
Series: Working paper / Harvard Business School -- 15-026; Working paper (Harvard Business School) -- 15-026
Publisher: Harvard Business School
Published: 2014
Place of publication: Boston]
Language: eng
Number of pages: 57
Description: 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: "October 2014" -- Publisher's website.

Includes bibliographical references (pages 33-35).