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Publications
Publications
  • 2014
  • Working Paper
  • HBS Working Paper Series

Dodging the Taxman: Firm Misreporting and Limits to Tax Enforcement

By: Paul Carrillo, Dina Pomeranz and Monica Singhal
  • Format:Print
  • | Language:English
  • | Pages:58
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Abstract

Reducing tax evasion is a key priority for many governments, particularly in developing countries. A growing literature has argued that the ability to verify taxpayer self-reports against reports from third parties is critical for modern tax enforcement and the growth of state capacity. However, there may be limits to the effectiveness of third-party information if taxpayers can make offsetting adjustments on less verifiable margins. We present a simple framework to demonstrate the conditions under which this will occur and provide strong empirical evidence for such behavior by exploiting a natural experiment in Ecuador. We find that when firms are notified by the tax authority about detected revenue discrepancies on previously filed corporate income tax returns, they increase reported revenues, matching the third-party estimate when provided. Firms also increase reported costs by 96 cents for every dollar of revenue adjustment, resulting in minor increases in total tax collection.

Keywords

Governance Compliance; Taxation; Ecuador

Citation

Carrillo, Paul, Dina Pomeranz, and Monica Singhal. "Dodging the Taxman: Firm Misreporting and Limits to Tax Enforcement." Harvard Business School Working Paper, No. 15-026, October 2014. (R&R at AEJ Applied. Note: Previously circulated as "Tax Me if You Can: Firm Misreporting Behavior and Evasion Substitution.")
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More from the Authors

    • January 2017
    • Public Finance Review

    Impact Evaluation Methods in Public Economics: A Brief Introduction to Randomized Evaluations and Comparison with Other Methods

    By: Dina Pomeranz
    • November 2015
    • Faculty Research

    Field 2: Some Tips on Navigating Common Pitfalls when Working in Emerging Markets

    By: Dina D. Pomeranz, Samik Adhikari and Juan Ignacio Elorrieta
    • American Economic Review

    No Taxation Without Information: Deterrence and Self-Enforcement in the Value Added Tax

    By: Dina Pomeranz
More from the Authors
  • Impact Evaluation Methods in Public Economics: A Brief Introduction to Randomized Evaluations and Comparison with Other Methods By: Dina Pomeranz
  • Field 2: Some Tips on Navigating Common Pitfalls when Working in Emerging Markets By: Dina D. Pomeranz, Samik Adhikari and Juan Ignacio Elorrieta
  • No Taxation Without Information: Deterrence and Self-Enforcement in the Value Added Tax By: Dina Pomeranz
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