Firm Networks and Tax Compliance: Experimental Evidence from Uganda

Miguel Almunia, David J. Henning, Justine Knebelmann, Dorothy Nakyambadde and Lin Tian

No 18151, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: How do policy interventions diffuse through firm transaction networks? We design a novel two-stage randomization strategy that assigns a tax enforcement treatment at the seller–buyer link level and ensures separation within the network to identify direct and spillover effects. Using Ugandan transaction-level VAT data, we find that treated links correct 23.8% of reporting discrepancies, fourteen times the control rate. Corrections are driven by sellers---even when only buyers receive letters---providing evidence of communication between firms. Spillovers extend to other transactions, with persistent improvements in post-treatment reporting. Sellers evade by reclassifying firm-to-firm transactions as unverifiable final sales, weakening the VAT's self-enforcing property.

Keywords: Tax evasion; Value added tax; Networks; Tax enforcement; Uganda (search for similar items in EconPapers)
JEL-codes: H25 H26 L14 (search for similar items in EconPapers)
Date: 2023-05
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Working Paper: Firm networks and tax compliance: experimental evidence from Uganda (2025)
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