Tax enforcement and firm performance: real and reporting responses to risk-based tax audits

Jarkko Harju, Kaisa Kotakorpi, Tuomas Matikka and Annika Nivala ()
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Kaisa Kotakorpi: Tampere University & Finnish Centre of Tax Systems Research (FIT) & CESifo
Tuomas Matikka: VATT Institute for Economic Research & Finnish Centre of Tax Systems Research (FIT) & CESifo
Annika Nivala: VATT Institute for Economic Research & Finnish Centre of Tax Systems Research (FIT)

International Tax and Public Finance, 2025, vol. 32, issue 6, No 5, 1734-1776

Abstract: Abstract We analyze firm responses to risk-based tax audits using data on the full population of firms in Finland. We find an immediate and persistent increase in reported profits by the audited firms after audit, compared to matched non-audited firms with a similar development in key outcomes before the audit. This indicates non-compliance in the baseline. Both revenue and labor costs increase after audit, suggesting that some firms follow a strategy of under-reporting their overall scale of operation. Our most novel finding is that audits increase bankruptcies among non-compliant firms, which implies that tax enforcement has real effects on market outcomes.

Keywords: Tax compliance; Tax evasion; Tax enforcement; Firm behavior; H26; H32; H83 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10797-025-09895-8

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