Impact of Third Party Audits on Compliance and Corruption: Evidence Using a Policy Experiment

61 Pages Posted: 25 Jan 2017

Date Written: January 24, 2017

Abstract

Using a policy experiment in India, we examine the impact of a third party audit on tax compliance. Employing the generalized difference-in-difference methodology, we find that growth in tax payment is 58 percentage points higher under a regime with no third party audit. The fact that the differential growth in tax is negatively associated with differential growth in discretionary expenses and also absence of any real growth of treated firms, suggestively indicate collusion and corruption. Our results hold up-to a battery of placebo tests, absorption of time varying and time invariant unobservable factors and, display heterogeneity based on expected lines.

Keywords: Tax Complainace, Corruption, Third Party Audit

JEL Classification: H25, H26

Suggested Citation

Tantri, Prasanna L., Impact of Third Party Audits on Compliance and Corruption: Evidence Using a Policy Experiment (January 24, 2017). Indian School of Business WP 2919091, Available at SSRN: https://ssrn.com/abstract=2904811 or http://dx.doi.org/10.2139/ssrn.2904811

Prasanna L. Tantri (Contact Author)

Indian School of Business ( email )

Hyderabad, Gachibowli 500 032
India
9160099959 (Phone)

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