Dodging the Taxman: Firm Misreporting and Limits to Tax Enforcement

Paul Carrillo, Dina Pomeranz and Monica Singhal

No 20624, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Reducing tax evasion is a key priority for many governments, particularly in developing countries. A growing literature has argued that the ability to verify taxpayer self-reports against reports from third parties is critical for modern tax enforcement and the growth of state capacity. However, there may be limits to the effectiveness of third-party information if taxpayers can make offsetting adjustments on less verifiable margins. We present a simple framework to demonstrate the conditions under which this will occur and provide strong empirical evidence for such behavior by exploiting a natural experiment in Ecuador. We find that when firms are notified by the tax authority about detected revenue discrepancies on previously filed corporate income tax returns, they increase reported revenues, matching the third-party estimate when provided. Firms also increase reported costs by 96 cents for every dollar of revenue adjustment, resulting in minor increases in total tax collection.

JEL-codes: H25 H26 O23 O38 (search for similar items in EconPapers)
Date: 2014-10
New Economics Papers: this item is included in nep-iue and nep-pub
Note: DEV PE
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Citations: View citations in EconPapers (33)

Published as Paul Carrillo & Dina Pomeranz & Monica Singhal, 2017. "Dodging the Taxman: Firm Misreporting and Limits to Tax Enforcement," American Economic Journal: Applied Economics, American Economic Association, vol. 9(2), pages 144-164, April.

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Related works:
Journal Article: Dodging the Taxman: Firm Misreporting and Limits to Tax Enforcement (2017)
Working Paper: Dodging the Taxman: Firm Misreporting and Limits to Tax Enforcement (2015)
Working Paper: Dodging the Taxman: Firm Misreporting and Limits to Tax Enforcement (2014)
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