Tax Audits as Scarecrows. Evidence from a Large-Scale Field Experiment

Marcelo Bergolo, Rodrigo Ceni Gonzalez, Guillermo Cruces, Matias Giaccobasso () and Ricardo Perez-Truglia
Additional contact information
Matias Giaccobasso: University of California, Los Angeles

No 12335, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: The canonical model of Allingham and Sandmo (1972) predicts that firms evade taxes by optimally trading off between the costs and benefits of evasion. However, there is no direct evidence that firms react to audits in this way. We conducted a large-scale field experiment in collaboration with Uruguay's tax authority to address this question. We sent letters to 20,440 small- and medium-sized firms that collectively paid more than 200 million dollars in taxes per year. Our letters provided exogenous yet nondeceptive signals about key inputs for their evasion decisions, such as audit probabilities and penalty rates. We measured the effect of these signals on their subsequent perceptions about the auditing process, based on survey data, as well as on the actual taxes paid, based on administrative data. We find that providing information about audits had a significant effect on tax compliance but in a manner that was inconsistent with Allingham and Sandmo (1972). Our findings are consistent with an alternative model, risk-as-feelings, in which messages about audits generate fear and induce probability neglect. According to this model, audits may deter tax evasion in the same way that scarecrows frighten off birds.

Keywords: frictions; penalties; audits; evasion; tax (search for similar items in EconPapers)
JEL-codes: C93 H26 K34 K42 Z13 (search for similar items in EconPapers)
Pages: 85 pages
Date: 2019-05
New Economics Papers: this item is included in nep-acc, nep-exp, nep-iue, nep-lam, nep-law and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published - published in: American Economic Journal, 2023, 15 (1), 110 - 153

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Related works:
Journal Article: Tax Audits as Scarecrows: Evidence from a Large-Scale Field Experiment (2023)
Working Paper: Tax Audits as Scarecrows: Evidence from a Large-Scale Field Experiment (2019)
Working Paper: Tax audits as scarecrows. Evidence from a large-scale field experiment (2019)
Working Paper: Tax Audits as Scarecrows: Evidence from a Large-Scale Field Experiment (2017)
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