Research Summary

Tax evasion

by Dina D. Pomeranz

Description

Tax evasion generates billions of dollars of losses in government revenue and creates large distortions, especially in developing countries. A growing, mostly theoretical literature argues that information flows are central to understanding effective taxation. Professor Pomeranz has analyzed the role of information for tax enforcement in the case of the Value Added Tax (VAT) in Chile. She finds that the paper trail generated by the VAT leads to important spillovers in tax enforcement along the production chain. These findings confirm the claim that the VAT has self-enforcing properties, a claim that has contributed to widespread VAT adoption worldwide. They also point to the important role that firms play as aggregators of information, thereby facilitating tax enforcement.