Tax Enforcement Spillovers – Evidence from South Africa

36 Pages Posted: 12 Jun 2020 Last revised: 4 Oct 2023

See all articles by Collen Lediga

Collen Lediga

Ruhr University of Bochum

Nadine Riedel

University of Münster

Kristina Strohmaier

University of Tuebingen

Date Written: October 4, 2023

Abstract

Taxpayer audits are the prime instrument to combat tax evasion. Whether their deterrence effect extends beyond audited taxpayers is largely unclear, however. Drawing on the universe of business tax audits and corporate income tax returns for South Africa, we test for audit spillovers in firm networks. The results suggest that audits improve the tax reporting of unaudited businesses in the same neighborhood as the targeted firm. On average, firms’ tax liability increases by 1.5% when a fellow business in close geographic proximity is audited. The estimate translates into sizable aggregate revenue gains as audited firms are connected to several neighboring businesses. Outside local neighborhoods, audit spillovers are limited to firms operating in the same industry or relying on the same tax preparer. The findings carry important implications for the design of tax enforcement systems.

Suggested Citation

Lediga, Collen and Riedel, Nadine and Strohmaier, Kristina, Tax Enforcement Spillovers – Evidence from South Africa (October 4, 2023). Available at SSRN: https://ssrn.com/abstract=3616817 or http://dx.doi.org/10.2139/ssrn.3616817

Collen Lediga

Ruhr University of Bochum ( email )

Universitätsstraße 150
Bochum, NRW 44780
Germany

Nadine Riedel (Contact Author)

University of Münster ( email )

Universitätsstraße 14-16
Münster, 48143
Germany

Kristina Strohmaier

University of Tuebingen

Wilhelmstr. 19
72074 Tuebingen, Baden Wuerttemberg 72074
Germany

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