Consumers as Tax Auditors
American Economic Review · 2019 · Volume 109 · Issue 9
Abstract
To investigate the enforcement value of third-party information on potentially collusive taxpayers, I study an anti-tax evasion program that rewards consumers for ensuring that firms report sales and establishes a verification system to aid whistle-blowing consumers in Sao Paulo, Brazil (Nota Fiscal Paulista). Firms reported sales increased by at least 21 percent over 4 years. The results are consistent with fixed costs of concealing collusion, increased detection probability from whistle-blower threats, and with behavioral biases associated with lotteries amplifying the enforcement value of the program. Although firms increased reported expenses, tax revenue net of rewards increased by 9.3 percent.
Keywords
Firm Behavior: Empirical Analysis, Business Taxes and Subsidies including sales and value-added (VAT), Tax Evasion and Avoidance, Firm Performance: Size, Diversification, and Scope, Industrialization, Manufacturing and Service Industries, Choice of Technology, Formal and Informal Sectors, Shadow Economy, Institutional Arrangements
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