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Clearing the Bar: Improving Tax Compliance for Small Firms through Target Setting

Yazan Al-Karablieh, Evangelos Koumanakos and Stefanie Stantcheva

No 15215, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We use a new dataset consisting of the universe of Greek corporate tax returns matched to financial statements to study a voluntary tax compliance program for small firms. This "self-assessment" program prescribed target taxable profit margins for different types of activity. Firms that reported profit margins above these targets in a given year were exempt from audits in that year. We find that the firms that take-up the program report significantly larger taxable profits than non-eligible firms, with some evidence of longer-lasting effects on tax reporting. Taxable profits increase by up to 70% of their pre-program levels. We also find that firms can easily and substantially manipulate reported revenue (decreasing it by up to 40%) to help meet prescribed profit margins. Overall, the program increased tax revenues collected from small firms, but points to a very large level of baseline under-reporting of profits and showcases the ease of manipulating reported revenues.

Keywords: Amnesty; Corporate taxation; Tax avoidance; Tax compliance; taxation (search for similar items in EconPapers)
JEL-codes: H20 (search for similar items in EconPapers)
Date: 2020-08
New Economics Papers: this item is included in nep-acc, nep-iue and nep-pbe
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