Technology and Tax Compliance Spillovers: Evidence from a Vat E-Invoicing Reform in Peru

Abstract

Our study uses administrative data on firm-to-firm transactions and quasi-experimental variation in the rollout of electronic invoicing reforms in Peru to study the diffusion of e-invoicing through firm networks and its effect on tax compliance. We find that voluntary e-invoicing adoption is higher amongst firms with partners who have been mandated to adopt e-invoicing, implying positive technology adoption spillovers. Spillovers are stronger from downstream partners and from export-oriented firms, consistent with incentives in the VAT system. Firm relationships are more likely to be interrupted when a partner is mandated into e-invoicing, with the effect only being partially reversed if both firms adopt e-invoicing, suggesting network segmentation may occur. Smaller firms who transact with partners mandated into e-invoicing report 11 percent more sales and pay 17 percent more VAT in the year that their partner is mandated to adopt e-invoicing, suggesting positive spillovers in tax compliance behavior among this subset of firms.

Keywords: VAT, tax compliance, technology spillovers, firm transaction data