The Spillover Effects of Crime on Firm Tax Evasion
80 Pages Posted: 19 Jan 2022 Last revised: 25 Jan 2022
Date Written: January 19, 2022
This paper uses firm-level survey data to explore whether the extent to which firms perceive taxes and crime as impediments to their operations and growth (perceived constraints) affects firm tax evasion. To rule out spurious covariation, I use reported crime incidences as an instrumental variable. I establish a negative effect of perceived constraints on sales reported for tax purposes. The effect is large and amounts to a drop in reported sales of 3.4-13.6% in the preferred specification. I hypothesise that this result is best explained by negative reciprocal behaviour against the state. The result is robust when adding a second instrument (Power Outages) and different controls.
Keywords: Reciprocity, Crime, Crime Perception, Tax evasion, Instrumental Variable
JEL Classification: C26, H26, H25, H41, D22, D62, C31
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