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Firm Networks and Tax Compliance: Experimental Evidence from Uganda

Author

Listed:
  • Almunia, Miguel
  • Henning, David J.
  • Knebelmann, Justine
  • Nakyambadde, Dorothy
  • Tian, Lin

Abstract

How do policy interventions diffuse through firm transaction networks? We design a novel two-stage randomization strategy that assigns a tax enforcement treatment at the seller–buyer link level and ensures separation within the network to identify direct and spillover effects. Using Ugandan transaction-level VAT data, we find that treated links correct 23.8% of reporting discrepancies, fourteen times the control rate. Corrections are driven by sellers---even when only buyers receive letters---providing evidence of communication between firms. Spillovers extend to other transactions, with persistent improvements in post-treatment reporting. Sellers evade by reclassifying firm-to-firm transactions as unverifiable final sales, weakening the VAT's self-enforcing property.

Suggested Citation

  • Almunia, Miguel & Henning, David J. & Knebelmann, Justine & Nakyambadde, Dorothy & Tian, Lin, 2023. "Firm Networks and Tax Compliance: Experimental Evidence from Uganda," CEPR Discussion Papers 18151, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:18151
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    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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