Tax Audits as Scarecrows: Evidence from a Large-Scale Field Experiment

Marcelo Bergolo, Rodrigo Ceni Gonzalez, Guillermo Cruces, Matias Giaccobasso and Ricardo Perez-Truglia

No 23631, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The canonical model of Allingham and Sandmo (1972) predicts that firms evade taxes by optimally trading off the costs and benefits of evasion. However, there is no direct evidence that firms react to audits in this way. We conducted a large-scale field experiment in collaboration with Uruguay’s tax authority to address this question. We sent letters to 20,440 small and medium-sized firms that collectively paid more than two hundred million U.S. dollars in taxes per year. Our letters provided exogenous yet nondeceptive signals on key inputs for their evasion decisions such as audit probabilities and penalty rates. Using survey data, we measured the effect of these signals on firms’ subsequent perceptions of the auditing process. Using administrative data, we measured their effect on actual taxes paid. We find that providing information on audits had a significant effect on tax compliance, but in a manner inconsistent with Allingham and Sandmo (1972). Our findings are consistent with an alternative model of risk-as-feeling, in which messages about audits generate fear and induce probability neglect. According to this model, audits may deter tax evasion in the same way scarecrows scare birds away.

JEL-codes: C93 H26 K42 (search for similar items in EconPapers)
Date: 2017-07
New Economics Papers: this item is included in nep-acc, nep-exp, nep-iue, nep-lam, nep-law, nep-pbe, nep-pub and nep-upt
Note: DEV LE PE
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Citations: View citations in EconPapers (28)

Published as Marcelo Bergolo & Rodrigo Ceni & Guillermo Cruces & Matias Giaccobasso & Ricardo Perez-Truglia, 2023. "Tax Audits as Scarecrows: Evidence from a Large-Scale Field Experiment," American Economic Journal: Economic Policy, American Economic Association, vol. 15(1), pages 110-153, February.
Published as Marcelo Bergolo & Rodrigo Ceni & Guillermo Cruces & Matias Giaccobasso & Ricardo Perez-Truglia, 2023. "Tax Audits as Scarecrows: Evidence from a Large-Scale Field Experiment," American Economic Journal: Economic Policy, vol 15(1), pages 110-153.

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Journal Article: Tax Audits as Scarecrows: Evidence from a Large-Scale Field Experiment (2023)
Working Paper: Tax Audits as Scarecrows: Evidence from a Large-Scale Field Experiment (2019)
Working Paper: Tax Audits as Scarecrows. Evidence from a Large-Scale Field Experiment (2019)
Working Paper: Tax audits as scarecrows. Evidence from a large-scale field experiment (2019)
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