Consumers as Tax Auditors

Joana Naritomi

No 13276, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Access to third-party information trails is widely believed to be critical to the development of modern tax systems, but there is limited direct evidence of the effects of changes in information trails. This paper investigates the enforcement effect of an increased availability of third-party information, and sheds light on how governments can harness this information despite collusion opportunities. I exploit unique administrative data on firms and consumers from an anti-tax evasion program in Sao Paulo, Brazil (Nota Fiscal Paulista) that created monetary rewards for consumers to ensure that firms report final sales transactions, and establishes an online verification system that aids consumers in whistle-blowing firms. Using variation in intensity of exposure to the policy, I estimate that firms' reported revenue increased by at least 21% over four years. Heterogeneous effects across firms shed light on mechanisms: the results are consistent with fixed costs to conceal collusive deals and positive shifts in detection probability from whistle-blower threats. I also investigate the effect of whistle-blowers directly: firms report 7% more receipts and 3% more revenue after receiving the first consumer complaint. To study the role of the value of rewards in improving enforcement, I show evidence consistent with the possibility that lottery incentives amplify consumer responses due to behavioral biases, which would make it more costly for firms to try to match government incentives in a collusive deal. Finally, I find that although firms significantly adjusted reported expenses, there was an increase in tax revenue net of rewards of 9.3%.

JEL-codes: D83 H25 H26 K34 O17 (search for similar items in EconPapers)
Date: 2018-10
New Economics Papers: this item is included in nep-acc, nep-iue, nep-law and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

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Related works:
Journal Article: Consumers as Tax Auditors (2019)
Working Paper: Consumers as tax auditors (2019)
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