Instituto de Economia (IECON)
Universidad de La Republica
1375 Joaquin Requena
Institutional Affiliation: IECON-UDELAR
NBER Working Papers and Publications
|July 2017||Tax Audits as Scarecrows: Evidence from a Large-Scale Field Experiment|
with Marcelo L. Bérgolo, Guillermo Cruces, Matias Giaccobasso, Ricardo Perez-Truglia: w23631
The canonical model of Allingham and Sandmo (1972) predicts that firms evade taxes by optimally trading off between the costs and benefits of evasion. However, there is no direct evidence that firms react to audits in this way. We conducted a large-scale field experiment in collaboration with Uruguay’s tax authority to address this question. We sent letters to 20,440 small- and medium-sized firms that collectively paid more than 200 million dollars in taxes per year. Our letters provided exogenous yet nondeceptive signals about key inputs for their evasion decisions, such as audit probabilities and penalty rates. We measured the effect of these signals on their subsequent perceptions about the auditing process, based on survey data, as well as on the actual taxes paid, based on administrat...