respectively in the year of implementation through to the second year following implementation.<sup>12</sup> These are economically sizable numbers.<sup>13</sup> One potential problem with our analysis is confounding policy reforms that coincide with the adoption of e-filing. To address this concern, we use two variables to proxy for reforms and the overall business climate in a country. One measure is the first principle component of the time to enforce a contract, the time and number of procedures to start a business, and the time and number of procedures to register a property (denoted as the “doing business” variable in the Table B.1.). We take these components from the _Doing Business_ database. Higher values of the constructed variable reflect a larger burden on business. The second measure is the business freedom index from the Heritage Foundation, where higher values represent more economic freedom for businesses. If these variables capture country-level reforms, and e-filing implementation is only a consequence of these reforms, then the effects of e-filing should be much lower after controlling for either of these proxies. Table B.1 in the Online Appendix reports the results of estimating specification (1) without lags and leads. In columns (I) and (II) only standard controls are includes, in columns (III) and (IV) the first principal component of the set of doing business indicators is added, and in columns (V) and (VI) the business freedom index is included. Both proxies are highly correlated with our tax compliance costs measures; however, the coefficients on the e-filing dummy variables remain qualitatively the same. This suggests that e-filing implementation has an effect independent of policy reforms and the business environment.

# _4.1.2. Firm-level evidence_

Table 2 shows the results of the estimation of specification (2). According to column I, the coefficients _α1_ and _α2_ on the e-filing indicator variables are negative and highly significant. The probability of being inspected by a tax official, therefore, drops by 9 percent and 8 percent respectively when a transactional e-filing or a transactional e-filing with e-payment is adopted. The impact on the number of tax visits is statistically significant at only 10 percent and only when transactional e-filing is adopted (column II). In that case, the number of visits drops by 4 percent.

Overall, our results suggest that e-filing implementation directly decreases tax compliance costs. Remarkably, our results from firm-level analysis are consistent with country-level estimates, despite using different measures of the same concept. These findings are also supported by the fact that firm managers are less likely to perceive tax administration as an obstacle to firms’ operation and growth when transactional e-filing with e-payment is adopted (column III). We also find that the adoption of transactional e-filing reduces the probability of paying bribes to tax officials by 5 percent (column IV). These results remain qualitatively the same if we also control for overall business environment in a

> 12 To derive the estimated effect, we compute: 1 – exp(���,�) and 1 – exp(���,�).

> 13 Since no cross-national data are available on expenditures on e-government we are unable to provide any costbenefit analysis of these investments in e-government. Clearly these returns also depend on whether governments adequately maintain the ICT infrastructure, and on data integrity and cyber-security.

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