Measuring True Sales and Underreporting with Matched Firm-Level Survey and Tax Office Data

Fujin Zhou and Remco Oostendorp
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Fujin Zhou: VU University Amsterdam and Tinbergen Institute

The Review of Economics and Statistics, 2014, vol. 96, issue 3, 563-576

Abstract: This paper uses firm-level survey data matched with official tax records to estimate the unobserved true sales of formal firms in Mongolia. Taking into account firm-level incentives to comply with taxes and a production function technology linking unobserved true sales with observable firm-level production characteristics, we derive a multiple-indicators, multiple-causes model predicting true sales. We find that firms underreport sales to the tax office by 38.6%, but firm-level survey data also suffer from significant underreporting. Finally, we compare our approach with two alternative approaches of measuring underreporting and discuss the practical implications of the findings for firm-level analyses of underreporting. © 2014 The President and Fellows of Harvard College and the Massachusetts Institute of Technology

Keywords: taxes; sales; formal firms; international economics (search for similar items in EconPapers)
JEL-codes: F23 H26 (search for similar items in EconPapers)
Date: 2014
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