Do Cheaters Bunch Together? Profit Taxes, Withholding Rates and Tax Evasion

41 Pages Posted: 5 Mar 2011 Last revised: 1 Jun 2012

See all articles by Paul E. Carrillo

Paul E. Carrillo

George Washington University - Department of Economics

M. Shahe Emran

George Washington University - Department of Economics

Rivadeneira Anita

Centro de Estudios Fiscales

Date Written: April 2012

Abstract

We use firm-level administrative data from Ecuador to study the implications of ‘reverse withholding’ for firms’ tax behavior. Withholding does not affect tax liability of firms, but it may result in a discontinuity in the audit probability around the withholding threshold. Exploiting variation in withholding rates across industries and over time, we find that firms’ profit taxes concentrate near the withholding rate. To explore the link between bunching and evasion, we use data from third party reports on sales and costs. We show that the firms that bunch are more likely to conceal their sales and inflate their costs.

Keywords: Withholding, Reverse Withholding, Firms, Profit Tax, Bunching, Tax Evasion, Ecuador

JEL Classification: H25, H26, O23, O12

Suggested Citation

Carrillo, Paul E. and Emran, M. Shahe and Anita, Rivadeneira, Do Cheaters Bunch Together? Profit Taxes, Withholding Rates and Tax Evasion (April 2012). Available at SSRN: https://ssrn.com/abstract=1775076 or http://dx.doi.org/10.2139/ssrn.1775076

Paul E. Carrillo (Contact Author)

George Washington University - Department of Economics ( email )

Monroe Hall Suite 340
2115 G Street NW
Washington, DC 20052
United States

M. Shahe Emran

George Washington University - Department of Economics ( email )

2115 G Street NW
302 Monroe Hall
Washington, DC 20052
United States

Rivadeneira Anita

Centro de Estudios Fiscales ( email )

Garcia Moreno
Sucre
Quito, Pichincha
Ecuador

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