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  • American Economic Review

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

By: Dina Pomeranz
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Abstract

Claims that the VAT facilitates tax enforcement by generating paper trails on transactions between firms contributed to widespread VAT adoption worldwide, but there is surprisingly little evidence. This paper analyzes the role of third-party information for VAT enforcement through two randomized experiments among over 400,000 Chilean firms. Announcing additional monitoring has less impact on transactions that are subject to a paper trail, indicating the paper trail's preventive deterrence effect. This leads to strong enforcement spillovers up the VAT chain. These findings confirm that when taking evasion into account, significant differences emerge between otherwise equivalent forms of taxation.

Keywords

Taxation; Product Development; Chile

Citation

Pomeranz, Dina. "No Taxation Without Information: Deterrence and Self-Enforcement in the Value Added Tax." American Economic Review 105, no. 8 (August 2015): 2539–2569. (Featured by CNN, Vox.eu, World Bank News, Bloomberg News and others.)
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More from the Author

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

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More from the Author
  • 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
  • Investigaciones en políticas tributarias By: Sebastian Bustos, Fernando Irarrázaval and Dina D. Pomeranz
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