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

77 Pages Posted: 3 Jun 2017 Last revised: 28 Oct 2018

See all articles by Marcelo Bergolo

Marcelo Bergolo

Universidad de la Republica - Instituto de Economía; IZA Institute of Labor Economics

Rodrigo Ceni

Universidad de la Republica

Guillermo Cruces

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

Matias Giaccobasso

University of California, Los Angeles (UCLA), Anderson School of Management, Students; Universidad de la Republica - Instituto de Economía; Universidad de la Republica

Ricardo Perez-Truglia

University of California, Los Angeles (UCLA); National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: Octoberr 2018

Abstract

The canonical model of Allingham and Sandmo (1972) predicts that firms evade taxes by optimally trading off between the costs and the benefits of evasion. However, there is still no consensus about whether real-world firms react to audits in this way. We conducted a large scale field experiment in collaboration with Uruguay’s tax authority to shed light on these issues. We sent letters to 20,440 small- and medium-sized firms that collectively pay over 200 million dollars in taxes per year. Our letters provided exogenous yet 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 increase their tax compliance in response to information about audits. However, we do not find these effects to be consistent with Allingham and Sandmo (1972). Our favorite interpretation of our findings is based on the model of risk-as-feelings: audits may deter tax evasion in the same way that scarecrows frighten off birds.

Keywords: tax, evasion, audits, penalties, frictions

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

Suggested Citation

Bergolo, 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 (Octoberr 2018). 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

IZA Institute of Labor Economics ( email )

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

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

University of California, Los Angeles (UCLA), Anderson School of Management, Students ( email )

Los Angeles, CA
United States

Universidad de la Republica - Instituto de Economía ( email )

Montevideo, Montevideo
Uruguay

Universidad de la Republica ( email )

Gonzalo Ramirez 1926
Montevideo, 11200
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/perez-truglia

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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