report both sales and costs, the taxable income response to all events is driven by a similarly-sized increase in reported sales and reported costs, as the numbers is squared brackets demonstrate.

Reporting by state institutions or credit/debit card companies (panels A3-B4) has a relatively homogenous eect on the self-employed and corporations, leading to a 21-26% increase in reported taxable income in both samples.<sup>42</sup> Although most rms are already subject to reporting by other rms when being rst reported by a state institution or card company, these new reports enforce a dierent margin - sales to state institutions and nal consumers, as opposed to inter-rm transactions - and may thus have an additional eect on reporting.<sup>43</sup> However, the result could also be driven by the fact that information reporting mechanism that are associated with withholding have a stronger compliance impact than pure reporting mechanisms. The next section will show that withholding indeed increases reported taxable income even when information reporting requirements are held constant.

In all gures, the event and control group follow similar, almost identical trends until the event, and then diverge precisely at event time _k_ = 0<sup>44</sup> , until the dierence between the two groups stabilizes at approximately _k_ = 1 . In the monthly sales tax data, the event group has a slightly higher pre-event growth rate than the control group, but the sudden divergence in the event month still supports a causal interpretation of the eect. Although oering consumers the possibility to pay by credit/debit card may increase sales, this eect is unlikley to materialize immediately, as consumers need to acquire the new information and adjust their purchasing behavior. We thus conclude that the size and timing of the eect is hard to reconcile with a pure growth eect, and must be at least partly driven by a compliance response to information reporting.

# 6 Impact of Withholding

Having show that information reporting increases reported taxable income, this section studies whether withholding has an impact on compliance beyond the impact generated by information reporting. We use the August 2011 reform of the sales tax withholding rate schedule to isolate the impact of withholding, holding the information environment constant. We start by analyzing the rst stage impact of the reform on realized witholding rates and card use, then conduct a

> 42Note also that the increase in reported taxable income (reported tax liability for the sales tax) is associated with an increase in the reported prot rate (reported value-added rate for the sales tax).

> 43For the event of credit/debit card reporting (last two gures) we use the reported tax liability (rather than reported taxable income) as outcome variable, and sales tax collected and input tax credits deducted (rather than sales and costs) for the decomposition, as these variables are available on the monthly sales tax declarations. The results are similar when conducting the analysis at the annual level with reported taxable income for the income tax as outcome. However, the event is less sharp in this case, as the rst credit card report may be led in the middle of a tax year rather than at the beginning of the year.

> 44This is true except in the case of corporations receiving a rst sales report from other rms (fourth panel), whose trend diverges from the control group at _k_ = _−_ 1 rather than _k_ = 0 .

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