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Taxes, Prisons, and CFOs: The Effects of Increased Punishment on Corporate Tax Compliance in Ecuador

Paul Carrillo (), M. Shahe Emran () and Gabriela Aparicio ()
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Gabriela Aparicio: Department of Economics, George Washington University

Working Papers from The George Washington University, Institute for International Economic Policy

Abstract: This paper takes advantage of a rich firm level data set from Ecuador to analyze the effects of a reform in 2007 that introduced imprisonment for tax evasion and made a firms CFO liable for tax-crimes. Our dataset contains actual tax-return and financial-statement information for the universe of corporations in Ecuador from 2003 to 2007. We study the effects of higher punishment both at the intensive and extensive margins. We combine a difference-in-difference-in-difference approach with the DiNardo, Fortin and Lemieux decomposition method. This allows us to estimate the heterogeneous effects of the reform across the distribution of firms. We find that, at the intensive margin the reform led to an average 10% increase in real corporate tax payments. However, positive effects are only found at the right tail of the tax distribution (above the 75th percentile). At the extensive margin, the probability of entry into the tax-net increased, but most of the firms that entered the tax net claimed zero taxes.

Keywords: Tax evasion; corporate tax compliance; tax reform; developing country; punishment; Ecuador (search for similar items in EconPapers)
JEL-codes: H26 H32 O12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-iue, nep-pbe and nep-pub
Date: 2011-04
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Persistent link: https://EconPapers.repec.org/RePEc:gwi:wpaper:2011-02

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