Intertemporal Income Shifting and Tax Evasion: Evidence From an Uruguayan Tax Reform

18 Pages Posted: 31 Dec 2018

See all articles by Dirk Foremny

Dirk Foremny

University of Barcelona - Institut d'Economia de Barcelona (IEB) ; CESifo (Center for Economic Studies and Ifo Institute)

Leonel Muinelo-Gallo

Autonomous University of Barcelona

Javier Vázquez‐Grenno

University of Barcelona

Date Written: December 12, 2018

Abstract

This paper provides empirical evidence on intertemporal income shifting during the implementation of a major tax reform in Uruguay. We exploit VAT and income tax returns for the universe of individuals that declare activity as liberal professionals (e.g. lawyers, public notaries, architects, engineers and accountants) during the years around the reform. Using a difference-in-difference approach, we document large shifting responses of personal business income in the month before the reform became effective. After controlling for fixed effects, on average an amount of 134,900 Uruguayan pesos (approx. 5,690 USD) is shifted in order to receive a beneficial fiscal treatment. This amount represent 99% of the average bi-monthly income reported in 2007. The income shifted increases up to 142.6 and 174.4% of the average reported income for the top 5 and top 1 percentiles. Furthermore, we show that architects and engineers, public notaries, and lawyers respond much stronger, especially if they perform their activity in the capital city. This suggests that income shifting, as a means of tax evasion, depends on the information spillovers and the salience of the tax reform.

Keywords: income shifting, tax evasion, emerging economies

JEL Classification: H26, H24, H20

Suggested Citation

Foremny, Dirk and Muinelo-Gallo, Leonel and Vázquez‐Grenno, Javier, Intertemporal Income Shifting and Tax Evasion: Evidence From an Uruguayan Tax Reform (December 12, 2018). Available at SSRN: https://ssrn.com/abstract=3300197 or http://dx.doi.org/10.2139/ssrn.3300197

Dirk Foremny (Contact Author)

University of Barcelona - Institut d'Economia de Barcelona (IEB) ( email )

c/ John M. Keynes, 1-11
Barcelona, 08034
Spain

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Leonel Muinelo-Gallo

Autonomous University of Barcelona ( email )

Plaça Cívica
Cerdañola del Valles
Barcelona, Barcelona 08193
Spain

Javier Vázquez‐Grenno

University of Barcelona

Gran Via de les Corts Catalanes, 585
Barcelona, 08007
Spain

Register to save articles to
your library

Register

Paper statistics

Downloads
6
Abstract Views
63
PlumX Metrics