the withholding rate is increased. We also nd a similar increase in reported taxable income after the introduction of tax withholding by credit/debit card companies for the purpose of income tax compliance in 2015 (a reform which again maintained the information environment constant). The results are shown in Appendix Figure XI.

The ndings raise the question of what drives the improvment in reporting, given that enforcement by the tax authorities has not increased, as evidence in panel F by the relatively constant audits rates. One possibility is that rms increase reported taxable income when reclaiming the tax withheld, in anticipation of a higher probability of cross-checks or monitoring. However, columns 3 and 4 of table VII show that rms which never make any reclaim experience a similar increase in reported tax liability as rms making a reclaim. This shows that the reporting eect is not driven by reclaimers.

Another possibility is that a withholding rate increase raises the salience and hence the perceived but not the true intensity of enforcement for some taxpayers. To see this, it is important to know that rms learn from their daily (or occassionally monthly) credit/debit card machine statements the volumne of card sales processed, any commissions applied by the card processors, and the amount of tax withheld and transmitted to the tax authorities.<sup>54</sup> Firms experiencing an increase in the withholding rate from a positive rate to a larger rate would notice the rate increase on their card machine statement only if they pay close attention to the amount of transactions processed and the amount of tax withheld, to back out the withholding rate applied. Firms experiencing an increase in the withholding rate from zero, however, are much more likely to notice the rate increase, as the box for tax withheld on their card machine statement switches from being blank to carrying a number. Noticing the application of withholding for the rst time may raise the salience of possible enforcement interventions like desk audits, and lead rms to increase compliance. Consistent with this, columns 5 and 6 show that rms experiencing a withholding rate increase from zero exhibit a larger increase both in their reported tax liability and in their total tax paid than rms experiencing a similarly-sized rate increase from a positive to a larger rate.<sup>55</sup> This signicant interaction does not disappear when additionally interacting with the self-employed and reclaimer indicator, and is always larger than the latter. We thus label the increase in reported tax liability among treated rms the salience of enforcement eect, as per the panel title in Figure X.<sup>56</sup>

> 54See Figure XII for an illustration of the type of information provided by card processing companies in Costa Rica to aliated businesses.

> 55We exclude from the From-Zero Rate Increase group all rms that experience the maximum rate increase of six percentage points, to ensure that the average rate increase in this group is not larger than the average rate increase among other treated rms.

> 56An alternative explanation might posit that rms are unaware of their true tax liability and thus report with error, but start to report more correctly after the withholding rate reform, as the withholding system provides them with information of their true tax liability. However, this explanation would be consistent with our results only if rms systematically (but non-strategically) underestimated their tax liability.

30