Do Cheaters Bunch Together? Profit Taxes, Withholding Rates and Tax Evasion

Paul Carrillo, M. Shahe Emran and Anita Rivadeneira ()
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Anita Rivadeneira: Centro de Estudios Fiscales, Servicio de Rentas Internas Ecuador

Working Papers from The George Washington University, Institute for International Economic Policy

Abstract: We use firm-level administrative data from Ecuador to study the implications of 'reverse withholding' for firms' tax behavior. Withholding does not affect tax liability of firms, but it may result in a discontinuity in the audit probability around the withholding threshold. Exploiting variation in withholding rates across industries and over time, we find that firms' profit taxes concentrate near the withholding rate. To explore the link between bunching and evasion, we use data from third party reports on sales and costs. We show that the firms that bunch are more likely to conceal their sales and inflate their costs. Finally, we create a profile of the firms that bunch and of their general managers: medium size firms in the coastal region headed by single males are significantly more likely to bunch and, presumably, to evade taxes.

Keywords: Withholding; Reverse Withholding; Firms; Profit Tax; Bunching; Tax Evasion; Ecuador (search for similar items in EconPapers)
JEL-codes: H25 H26 O12 O23 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2011-03
New Economics Papers: this item is included in nep-acc, nep-iue, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:gwi:wpaper:2011-03

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