Dodging the Taxman: Firm Misreporting and Limits to Tax Enforcement

59 Pages Posted: 19 May 2015

See all articles by Paul E. Carrillo

Paul E. Carrillo

George Washington University - Department of Economics

Dina Pomeranz

Harvard University - Business School (HBS)

Monica Singhal

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: May 2015

Abstract

Reducing tax evasion is a key priority for many governments, particularly in developing countries. A growing literature argues that cross-checks of taxpayer reports against third-party information are critical for effective tax enforcement. However, such cross-checks may have limited effectiveness if taxpayers can make offsetting adjustments on other margins. We present a simple framework demonstrating conditions under which this occurs and empirical evidence from a natural experiment in Ecuador. When firms are notified about detected revenue discrepancies, they increase reported revenues - but also reported costs (by 96 cents per dollar of revenue adjustment), resulting in minor increases in tax collection.

Keywords: Ecuador, evasion, tax

JEL Classification: H25, H26, O23, O38

Suggested Citation

Carrillo, Paul E. and Pomeranz, Dina and Singhal, Monica, Dodging the Taxman: Firm Misreporting and Limits to Tax Enforcement (May 2015). CEPR Discussion Paper No. DP10603, Available at SSRN: https://ssrn.com/abstract=2608061

Paul E. Carrillo (Contact Author)

George Washington University - Department of Economics ( email )

Monroe Hall Suite 340
2115 G Street NW
Washington, DC 20052
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Dina Pomeranz

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Monica Singhal

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-496-5062 (Phone)
617-496-6372 (Fax)

HOME PAGE: http://ksgfaculty.harvard.edu/monica_singhal

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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