Ghosting the Tax Authority: Fake Firms and Tax Fraud

Paul Carrillo, Dave Donaldson, Dina Pomeranz and Monica Singhal

No 17453, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: An important but poorly understood form of firm tax evasion arises from the use of “ghost firms†—fake firms that issue fraudulent receipts so that their clients can claim false deductions. We provide a unique window into this global phenomenon using transaction-level tax data from Ecuador. Ghost transactions are widespread, prevalent among large firms and firms with high-income owners, and exhibit suspicious patterns in comparison to ordinary transactions: bunching at round numbers, at the end of the fiscal year, and just below financial system thresholds. We go on to study an innovative enforcement intervention that targeted ghost clients rather than ghosts themselves, which led to substantial tax recovery.

Date: 2022-07
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Working Paper: Ghosting the Tax Authority: Fake Firms and Tax Fraud (2022)
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