How Do Firms Respond to Risk-based Tax Audits?
Jarkko Harju,
Kaisa Kotakorpi (),
Tuomas Matikka and
Annika Nivala ()
Additional contact information
Kaisa Kotakorpi: Tampere University
Annika Nivala: VATT Institute for Economic Research
No 22, Working Papers from Finnish Centre of Excellence in Tax Systems Research
Abstract:
We analyze firm responses to risk-based tax audits – a central tool in regular tax enforcement – using full-population data on tax audits and tax returns in Finland. We find an immediate and persistent increase in reported profits by the audited firms after being audited compared to matched non-audited firms with a similar development in key outcomes before the audit. This is an indication of significant non-compliance in the baseline. We also examine the anatomy of non-compliance and find that both revenue and labor costs increase after audits, suggesting that some firms may follow a strategy of under-reporting their overall scale of operation. We use novel data on bankruptcy petitions and court decisions to investigate whether stricter tax enforcement has implications for real economic activity. We find a large increase in the likelihood of bankruptcy after audits among non-compliant firms, but no increase in bankruptcies for compliant firms.
Keywords: tax compliance; tax evasion; tax enforcement; firm behavior (search for similar items in EconPapers)
JEL-codes: H26 H32 H83 (search for similar items in EconPapers)
Pages: 56
Date: 2024-05
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:
Published in FIT Working Paper Series, Finnish Center of Excellence in Tax Systems Research
Downloads: (external link)
https://verotutkimus.fi/verotutkimus/wp-content/up ... ax-audits-030624.pdf First version, 2024 (application/pdf)
Related works:
Working Paper: How Do Firms Respond to Risk-based Tax Audits? (2024) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:fit:wpaper:22
Access Statistics for this paper
More papers in Working Papers from Finnish Centre of Excellence in Tax Systems Research Contact information at EDIRC.
Bibliographic data for series maintained by Marjukka Hourunranta ().