Strategic or Confused Firms? Evidence from “Missing” Transactions in Uganda

Miguel Almunia, Jonas Hjort, Justine Knebelmann and Lin Tian
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Justine Knebelmann: MIT and J-PAL
Lin Tian: INSEAD and CEPR

The Review of Economics and Statistics, 2024, vol. 106, issue 1, 256-265

Abstract: Are firms sophisticated maximizers, or do they appear to make mistakes? Using transaction data from Ugandan value-added tax returns, we show that sellers and buyers report different amounts 79% of the time, despite invoices being easily cross-checked. Our estimates suggest that most firms are “advantageous misreporters,” but that 25% are “disadvantageous misreporters” who systematically overreport own sales minus purchases such that their tax liability increases. Similarly, many firms—especially disadvantageous misreporters—fail to VAT-report imported inputs they themselves reported at Customs, increasing their liability. On net, unilateral VAT misreporting cost Uganda about US$384 million in foregone 2013–2016 tax revenue.

Date: 2024
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Working Paper: Strategic or Confused Firms? Evidence from "Missing" Transactions in Uganda (2021)
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