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Tax Audits as Scarecrows: Evidence from a Large-Scale Field Experiment

61 Pages Posted: 3 Jun 2017 Last revised: 22 Jul 2017

Marcelo Bérgolo

Universidad de la Republica - Instituto de Economía; Universidad Nacional de La Plata - Centro de Estudios Distributivos, Laborales y Sociales (CEDLAS)

Rodrigo Ceni

Universidad de la Republica

Guillermo Cruces

Universidad Nacional de La Plata - Centro de Estudios Distributivos, Laborales y Sociales (CEDLAS); IZA

Matias Giaccobasso

Universidad de la Republica; Universidad de la Republica - Instituto de Economía

Ricardo Perez-Truglia

University of California, Los Angeles (UCLA)

Multiple version iconThere are 2 versions of this paper

Date Written: July 1, 2017

Abstract

According to the canonical model of Allingham and Sandmo (1972), firms evade taxes by making a trade-off between a lower tax burden and higher expected penalties. However, there is still no consensus about whether real-world firms operate in this rational way. We conducted a large-scale field experiment, sending letters to over 20,000 firms that collectively pay over 200 million dollars in taxes per year. In our letters, we provided firms with exogenous but nondeceptive signals about key inputs for their evasion decisions, such as audit probabilities and penalty rates. We measure the effect of these signals on their subsequent perceptions about the auditing process, based on survey data, as well as on the actual taxes paid, according to administrative data. We find that firms do increase their tax compliance in response to information about audits. However, the patterns in these responses are inconsistent with utility maximization. The evidence suggests that, much like scarecrows frighten off birds, audits can be a significant deterrent for tax evaders even though they would be perceived as harmless by a rational optimizer.

Keywords: tax, evasion, audits, penalties, frictions

JEL Classification: C93, H26, K34, K42, Z13

Suggested Citation

Bérgolo, Marcelo and Ceni, Rodrigo and Cruces, Guillermo and Giaccobasso, Matias and Perez-Truglia, Ricardo, Tax Audits as Scarecrows: Evidence from a Large-Scale Field Experiment (July 1, 2017). Available at SSRN: https://ssrn.com/abstract=2979096 or http://dx.doi.org/10.2139/ssrn.2979096

Marcelo Bergolo

Universidad de la Republica - Instituto de Economía ( email )

Montevideo
Uruguay

HOME PAGE: http://www.iecon.ccee.edu.uy

Universidad Nacional de La Plata - Centro de Estudios Distributivos, Laborales y Sociales (CEDLAS) ( email )

Calle 6 e/47 y 48
La Plata, Provincia de Buenos Aires 1900
Argentina

Rodrigo Ceni

Universidad de la Republica ( email )

Gonzalo Ramirez 1926
Montevideo, 11200
Uruguay

Guillermo Cruces

Universidad Nacional de La Plata - Centro de Estudios Distributivos, Laborales y Sociales (CEDLAS) ( email )

Centro de Estudios Distributivos, Laborales y
Sociales, Calle 6 e/47 y 48
La Plata, Provincia de Buenos Aires 1900
Argentina

HOME PAGE: http://cedlas.econo.unlp.edu.ar

IZA

P.O. Box 7240
Bonn, D-53072
Germany

Matias Giaccobasso

Universidad de la Republica ( email )

Gonzalo Ramirez 1926
Montevideo, 11200
Uruguay

Universidad de la Republica - Instituto de Economía ( email )

Montevideo, Montevideo
Uruguay

Ricardo Perez-Truglia (Contact Author)

University of California, Los Angeles (UCLA) ( email )

405 Hilgard Avenue
Box 951361
Los Angeles, CA 90095
United States

HOME PAGE: http://www.anderson.ucla.edu/faculty/global-economics-and-management/perez-truglia

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