Taxes, Prisons, and CFOs: The Effects of Increased Punishment on Corporate Tax Compliance in Ecuador

38 Pages Posted: 16 Apr 2011

See all articles by Gabriela Aparicio

Gabriela Aparicio

George Washington University - Department of Economics

Paul E. Carrillo

George Washington University - Department of Economics

M. Shahe Emran

George Washington University - Department of Economics

Date Written: April 13, 2011

Abstract

This paper takes advantage of a rich firm level data set from Ecuador to analyze the effects of a reform in 2007 that introduced imprisonment for tax evasion and made a firm’s CFO liable for tax-crimes. Our dataset contains actual tax-return and financial-statement for the universe of corporations in Ecuador from 2003 to 2007. We study the effects of higher punishment both at the intensive and extensive margins. We combine a difference-in-difference-in-difference approach with the DiNardo, Fortin and Lemieux decomposition method. This allows us to estimate the heterogeneous effects of the reform across the distribution of firms. We find that, at the intensive margin the reform led to an average 10% increase in real corporate tax payments. However, positive effects are only found at the right tail of the tax distribution (above the 75th percentile). At the extensive margin, the probability of entry into the tax-net increased, but most of the firms that entered the tax net claimed zero taxes.

Keywords: Tax evasion, corporate tax compliance, tax reform, developing country, punishment, Ecuador

JEL Classification: H26, H32, O12

Suggested Citation

Aparicio, Gabriela and Carrillo, Paul E. and Emran, M. Shahe, Taxes, Prisons, and CFOs: The Effects of Increased Punishment on Corporate Tax Compliance in Ecuador (April 13, 2011). Available at SSRN: https://ssrn.com/abstract=1808945 or http://dx.doi.org/10.2139/ssrn.1808945

Gabriela Aparicio

George Washington University - Department of Economics ( email )

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

Paul E. Carrillo

George Washington University - Department of Economics ( email )

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

M. Shahe Emran (Contact Author)

George Washington University - Department of Economics ( email )

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

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