IDEAS home Printed from https://ideas.repec.org/p/cge/wacage/245.html
   My bibliography  Save this paper

Under the Radar: The Effects of Monitoring Firms on Tax Compliance

Author

Listed:
  • Almunia, Miguel

    (University of Warwick and CAGE)

  • Lopez-Rodriguez, David

    (Banco de España)

Abstract

This paper analyzes the effects on tax compliance of monitoring the information trails generated by firms’ activities. We exploit quasi-experimental variation generated by a Large Taxpayers Unit (LTU) in Spain, which monitors firms with more than 6 million euros in reported revenue. Firms strategically bunch below this threshold in order to avoid stricter tax enforcement. This response is stronger in sectors where transactions leave more paper trail, implying that monitoring effort and the traceability of information reported by firms are complements. We calculate that there would be substantial welfare gains from extending stricter tax monitoring to smaller businesses.

Suggested Citation

  • Almunia, Miguel & Lopez-Rodriguez, David, 2015. "Under the Radar: The Effects of Monitoring Firms on Tax Compliance," CAGE Online Working Paper Series 245, Competitive Advantage in the Global Economy (CAGE).
    • Handle: RePEc:cge:wacage:245
    as

    Download full text from publisher

    File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/centres/cage/manage/publications/245-2015_alumnia.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Slemrod, Joel, and Christian Gillitzer, 2014. "Tax Systems," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262026724, December.
    2. Luis Garicano & Claire Lelarge & John Van Reenen, 2016. "Firm Size Distortions and the Productivity Distribution: Evidence from France," American Economic Review, American Economic Association, vol. 106(11), pages 3439-3479, November.
    3. Bird,Richard & Gendron,Pierre-Pascal, 2011. "The VAT in Developing and Transitional Countries," Cambridge Books, Cambridge University Press, number 9781107401440.
    4. Miguel Almunia & David Lopez-Rodriguez, 2014. "Heterogeneous Responses to Effective Tax Enforcement: Evidence from Spanish Firms," Working Papers 1412, Oxford University Centre for Business Taxation.
    5. Martin Feldstein, 1999. "Tax Avoidance And The Deadweight Loss Of The Income Tax," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 674-680, November.
    6. Raj Chetty & John N. Friedman & Tore Olsen & Luigi Pistaferri, 2011. "Adjustment Costs, Firm Responses, and Micro vs. Macro Labor Supply Elasticities: Evidence from Danish Tax Records," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(2), pages 749-804.
    7. Michael Carlos Best & Anne Brockmeyer & Henrik Jacobsen Kleven & Johannes Spinnewijn & Mazhar Waseem, 2015. "Production versus Revenue Efficiency with Limited Tax Capacity: Theory and Evidence from Pakistan," Journal of Political Economy, University of Chicago Press, vol. 123(6), pages 1311-1355.
    8. Wojciech Kopczuk & David Munroe, 2015. "Mansion Tax: The Effect of Transfer Taxes on the Residential Real Estate Market," American Economic Journal: Economic Policy, American Economic Association, vol. 7(2), pages 214-257, May.
    9. Henrik Jacobsen Kleven & Martin B. Knudsen & Claus Thustrup Kreiner & Søren Pedersen & Emmanuel Saez, 2011. "Unwilling or Unable to Cheat? Evidence From a Tax Audit Experiment in Denmark," Econometrica, Econometric Society, vol. 79(3), pages 651-692, May.
    10. Keen, Michael & Lockwood, Ben, 2010. "The value added tax: Its causes and consequences," Journal of Development Economics, Elsevier, vol. 92(2), pages 138-151, July.
    11. Wojciech Kopczuk & Joel Slemrod, 2006. "Putting Firms into Optimal Tax Theory," American Economic Review, American Economic Association, vol. 96(2), pages 130-134, May.
    12. Onji, Kazuki, 2009. "The response of firms to eligibility thresholds: Evidence from the Japanese value-added tax," Journal of Public Economics, Elsevier, vol. 93(5-6), pages 766-775, June.
    13. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
    14. Bastani, Spencer & Selin, Håkan, 2014. "Bunching and non-bunching at kink points of the Swedish tax schedule," Journal of Public Economics, Elsevier, vol. 109(C), pages 36-49.
    15. Michael Carlos Best & Henrik Jacobsen Kleven, 2018. "Housing Market Responses to Transaction Taxes: Evidence From Notches and Stimulus in the U.K," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 85(1), pages 157-193.
    16. Gordon, Roger & Li, Wei, 2009. "Tax structures in developing countries: Many puzzles and a possible explanation," Journal of Public Economics, Elsevier, vol. 93(7-8), pages 855-866, August.
    17. Emmanuel Saez, 2010. "Do Taxpayers Bunch at Kink Points?," American Economic Journal: Economic Policy, American Economic Association, vol. 2(3), pages 180-212, August.
    18. Yuriy Gorodnichenko & Jorge Martinez-Vazquez & Klara Sabirianova Peter, 2009. "Myth and Reality of Flat Tax Reform: Micro Estimates of Tax Evasion Response and Welfare Effects in Russia," Journal of Political Economy, University of Chicago Press, vol. 117(3), pages 504-554, June.
    19. Henrik J. Kleven & Mazhar Waseem, 2013. "Using Notches to Uncover Optimization Frictions and Structural Elasticities: Theory and Evidence from Pakistan," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(2), pages 669-723.
    20. Raj Chetty & John N. Friedman & Emmanuel Saez, 2013. "Using Differences in Knowledge across Neighborhoods to Uncover the Impacts of the EITC on Earnings," American Economic Review, American Economic Association, vol. 103(7), pages 2683-2721, December.
    21. Dina Pomeranz, 2015. "No Taxation without Information: Deterrence and Self-Enforcement in the Value Added Tax," American Economic Review, American Economic Association, vol. 105(8), pages 2539-2569, August.
    22. Michael P. Devereux & Li Liu & Simon Loretz, 2014. "The Elasticity of Corporate Taxable Income: New Evidence from UK Tax Records," American Economic Journal: Economic Policy, American Economic Association, vol. 6(2), pages 19-53, May.
    23. Paul Carrillo & Dina Pomeranz & Monica Singhal, 2017. "Dodging the Taxman: Firm Misreporting and Limits to Tax Enforcement," American Economic Journal: Applied Economics, American Economic Association, vol. 9(2), pages 144-164, April.
    24. Ravi Kanbur & Michael Keen, 2014. "Thresholds, informality, and partitions of compliance," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(4), pages 536-559, August.
    25. Kleven, Henrik & Best, Michael & Spinnewijn, Johannes & Waseem, Mazhar & Brockmeyer, Anne, 2013. "Production vs Revenue Efficiency With Limited Tax Capacity: Theory and Evidence From Pakistan," CEPR Discussion Papers 9717, C.E.P.R. Discussion Papers.
    26. Slemrod, Joel & Blumenthal, Marsha & Christian, Charles, 2001. "Taxpayer response to an increased probability of audit: evidence from a controlled experiment in Minnesota," Journal of Public Economics, Elsevier, vol. 79(3), pages 455-483, March.
    27. Slemrod, Joel & Collins, Brett & Hoopes, Jeffrey L. & Reck, Daniel & Sebastiani, Michael, 2017. "Does credit-card information reporting improve small-business tax compliance?," Journal of Public Economics, Elsevier, vol. 149(C), pages 1-19.
    28. Nicky J. Welton & Howard H. Z. Thom, 2015. "Value of Information," Medical Decision Making, , vol. 35(5), pages 564-566, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Miguel Almunia & David Lopez-Rodriguez, 2014. "Heterogeneous Responses to Effective Tax Enforcement: Evidence from Spanish Firms," Working Papers 1412, Oxford University Centre for Business Taxation.
    2. Asatryan, Zareh & Peichl, Andreas, 2016. "Responses of firms to tax, administrative and accounting rules: Evidence from Armenia," ZEW Discussion Papers 16-065, ZEW - Leibniz Centre for European Economic Research.
    3. Brockmeyer,Anne & Hernandez,Marco, 2016. "Taxation, information, and withholding : evidence from Costa Rica," Policy Research Working Paper Series 7600, The World Bank.
    4. Todd Kumler & Eric Verhoogen & Judith Frías, 2020. "Enlisting Employees in Improving Payroll Tax Compliance: Evidence from Mexico," The Review of Economics and Statistics, MIT Press, vol. 102(5), pages 881-896, December.
    5. Dina Pomeranz & José Vila-Belda, 2019. "Taking State-Capacity Research to the Field: Insights from Collaborations with Tax Authorities," Annual Review of Economics, Annual Reviews, vol. 11(1), pages 755-781, August.
    6. Jarkko Harju & Tuomas Matikka & Timo Rauhanen, 2016. "The Effects of Size-Based Regulation on Small Firms: Evidence from VAT Threshold," CESifo Working Paper Series 6115, CESifo.
    7. James Alm, 2019. "What Motivates Tax Compliance?," Journal of Economic Surveys, Wiley Blackwell, vol. 33(2), pages 353-388, April.
    8. Michael Carlos Best & Anne Brockmeyer & Henrik Jacobsen Kleven & Johannes Spinnewijn & Mazhar Waseem, 2015. "Production versus Revenue Efficiency with Limited Tax Capacity: Theory and Evidence from Pakistan," Journal of Political Economy, University of Chicago Press, vol. 123(6), pages 1311-1355.
    9. Marcelo Bergolo & Gabriel Burdin & Mauricio De Rosa & Matias Giaccobasso & Martín Leites, 2019. "Tax bunching at the Kink in the Presence of Low Capacity of Enforcement: Evidence From Uruguay," Documentos de Trabajo (working papers) 19-05, Instituto de Economía - IECON.
    10. Waseem, Mazhar, 2018. "Taxes, informality and income shifting: Evidence from a recent Pakistani tax reform," Journal of Public Economics, Elsevier, vol. 157(C), pages 41-77.
    11. Wian Boonzaaier & Jarkko Harju & Tuomas Matikka & Jukka Pirttilä, 2019. "How do small firms respond to tax schedule discontinuities? Evidence from South African tax registers," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(5), pages 1104-1136, October.
    12. Kleven, Henrik & Best, Michael & Spinnewijn, Johannes & Waseem, Mazhar & Brockmeyer, Anne, 2013. "Production vs Revenue Efficiency With Limited Tax Capacity: Theory and Evidence From Pakistan," CEPR Discussion Papers 9717, C.E.P.R. Discussion Papers.
    13. Li Liu & Ben Lockwood & Miguel Almunia & Eddy H. F. Tam, 2021. "VAT Notches, Voluntary Registration, and Bunching: Theory and U.K. Evidence," The Review of Economics and Statistics, MIT Press, vol. 103(1), pages 151-164, March.
    14. Wian Boonzaaier & Jarkko Harju & Tuomas Matikka & Jukka Pirttilä, 2019. "How do small firms respond to tax schedule discontinuities? Evidence from South African tax registers," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(5), pages 1104-1136, October.
    15. Keen, Michael & Slemrod, Joel, 2017. "Optimal tax administration," Journal of Public Economics, Elsevier, vol. 152(C), pages 133-142.
    16. Bohne, Albrecht & Nimczik, Jan Sebastian, 2018. "Information Frictions and Learning Dynamics: Evidence from Tax Avoidance in Ecuador," IZA Discussion Papers 11536, Institute of Labor Economics (IZA).
    17. Annette Alstadsæter & Wojciech Kopczuk & Kjetil Telle, 2019. "Social networks and tax avoidance: evidence from a well-defined Norwegian tax shelter," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(6), pages 1291-1328, December.
    18. Joana Naritomi, 2019. "Consumers as Tax Auditors," American Economic Review, American Economic Association, vol. 109(9), pages 3031-3072, September.
    19. Bertanha, Marinho & McCallum, Andrew H. & Seegert, Nathan, 2023. "Better bunching, nicer notching," Journal of Econometrics, Elsevier, vol. 237(2).
    20. Philippe Aghion & Ufuk Akcigit & Maxime Gravoueille & Matthieu Lequien & Stefanie Stantcheva, 2023. "Tax simplicity or simplicity of evasion? Evidence from self-employment taxes in France," POID Working Papers 050, Centre for Economic Performance, LSE.

    More about this item

    Keywords

    tax enforcement; firms; bunching; Spain; Large Taxpayers Unit (LTU) JEL Classification: H26; H32;
    All these keywords.

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cge:wacage:245. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Jane Snape (email available below). General contact details of provider: https://edirc.repec.org/data/dewaruk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.