No Taxation without Information: Deterrence and Self-Enforcement in the Value Added Tax
- (pp. 2539-69)
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. (JEL D83, H25, H26, K34, O17)Citation
Pomeranz, Dina. 2015. "No Taxation without Information: Deterrence and Self-Enforcement in the Value Added Tax." American Economic Review, 105 (8): 2539-69. DOI: 10.1257/aer.20130393Additional Materials
JEL Classification
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- H25 Business Taxes and Subsidies including sales and value-added (VAT)
- H26 Tax Evasion and Avoidance
- K34 Tax Law
- O17 Formal and Informal Sectors; Shadow Economy; Institutional Arrangements