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Inferring Tax Compliance from Pass-through: Evidence from Airbnb Tax Enforcement Agreements

Andrew J. Bibler, Keith Teltser and Mark Tremblay

Department of Economics Working Papers from McMaster University

Abstract: Tax enforcement can be prohibitively costly when market transactions and participants are difficult to observe. Evasion among market participants may reduce tax revenue and provide certain types of suppliers an undue competitive advantage. Whether efforts to fully enforce taxes are worthwhile depends on the rate of compliance in the absence of such efforts. In this paper, we show that an upper bound on pre-enforcement tax compliance can be obtained using market data on pre- and post-enforcement periods. To do this, we estimate the pass-through of tax enforcement agreements between the largest online short-term housing rental platform and state and local governments, which achieve full compliance at the point of sale. Using transaction-level data on Airbnb listings across a number of U.S. metropolitan areas, as well as variation in enforcement agreements across time, location, and tax rate, we estimate that taxes are paid on no more than 23 percent of Airbnb transactions prior to enforcement. We also provide insight on demand- and supply-side responses to taxation in online and sharing economy marketplaces, as well as the potential associated inefficiencies.

Keywords: tax compliance; evasion; enforcement; short-term housing rentals; sharing economy; Airbnb (search for similar items in EconPapers)
JEL-codes: H20 H22 H26 L10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-iue, nep-law and nep-pub
Date: 2018-02
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Persistent link: https://EconPapers.repec.org/RePEc:mcm:deptwp:2018-06

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