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

51 Pages Posted: 3 Jun 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)

Date Written: May 31, 2017

Abstract

According to the workhorse model of Allingham and Sandmo (1972), firms evade taxes by optimally trading-off between the lower tax burden and the expected penalties from audits. However, there is still no consensus about whether firms react to audits and whether they react in a rational way. We conducted a large-scale field experiment with over 20,000 Uruguayan firms that collectively pay over $200 million dollars in taxes per year. We provided firms with exogenous but non-deceptive signals about the probability of being audited and the penalty rates for tax evasion. We measure the effect of this information on their subsequent perceptions about audits, measured with survey data, as well as on the actual taxes paid. We provide evidence that firm's reaction to audits is subject to substantial optimization and information frictions.

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 (May 31, 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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