Discussion Paper Details

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Title: Dodging the Taxman: Firm Misreporting and Limits to Tax Enforcement

Author(s): Paul Carrillo, Dina D. Pomeranz and Monica Singhal

Publication Date: May 2015

Keyword(s): Ecuador, evasion and tax

Programme Area(s): Development Economics and Public Economics

Abstract: Reducing tax evasion is a key priority for many governments, particularly in developing countries. A growing literature argues that cross-checks of taxpayer reports against third-party information are critical for effective tax enforcement. However, such cross-checks may have limited effectiveness if taxpayers can make offsetting adjustments on other margins. We present a simple framework demonstrating conditions under which this occurs and empirical evidence from a natural experiment in Ecuador. When firms are notified about detected revenue discrepancies, they increase reported revenues - but also reported costs (by 96 cents per dollar of revenue adjustment), resulting in minor increases in tax collection.

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Bibliographic Reference

Carrillo, P, Pomeranz, D and Singhal, M. 2015. 'Dodging the Taxman: Firm Misreporting and Limits to Tax Enforcement'. London, Centre for Economic Policy Research.