IDEAS home Printed from https://ideas.repec.org/p/gwi/wpaper/2011-02.html
   My bibliography  Save this paper

Taxes, Prisons, and CFOs: The Effects of Increased Punishment on Corporate Tax Compliance in Ecuador

Author

Listed:
  • Paul E. Carrillo

    () (Department of Economics/Institute for International Economic Policy, George Washington University)

  • M. Shahe Emran

    () (Department of Economics/Institute for International Economic Policy, George Washington University and IPD, Columbia University)

  • Gabriela Aparicio

    () (Department of Economics, George Washington University)

Abstract

This paper takes advantage of a rich firm level data set from Ecuador to analyze the effects of a reform in 2007 that introduced imprisonment for tax evasion and made a firms CFO liable for tax-crimes. Our dataset contains actual tax-return and financial-statement information for the universe of corporations in Ecuador from 2003 to 2007. We study the effects of higher punishment both at the intensive and extensive margins. We combine a difference-in-difference-in-difference approach with the DiNardo, Fortin and Lemieux decomposition method. This allows us to estimate the heterogeneous effects of the reform across the distribution of firms. We find that, at the intensive margin the reform led to an average 10% increase in real corporate tax payments. However, positive effects are only found at the right tail of the tax distribution (above the 75th percentile). At the extensive margin, the probability of entry into the tax-net increased, but most of the firms that entered the tax net claimed zero taxes.

Suggested Citation

  • Paul E. Carrillo & M. Shahe Emran & Gabriela Aparicio, 2011. "Taxes, Prisons, and CFOs: The Effects of Increased Punishment on Corporate Tax Compliance in Ecuador," Working Papers 2011-02, The George Washington University, Institute for International Economic Policy.
  • Handle: RePEc:gwi:wpaper:2011-02
    as

    Download full text from publisher

    File URL: http://www.gwu.edu/~iiep/assets/docs/papers/Carrillo_IIEPWP2011-02.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Robin Boadway & Motohiro Sato, 2009. "Optimal Tax Design and Enforcement with an Informal Sector," American Economic Journal: Economic Policy, American Economic Association, pages 1-27.
    2. Emran, M. Shahe & Stiglitz, Joseph E., 2005. "On selective indirect tax reform in developing countries," Journal of Public Economics, Elsevier, pages 599-623.
    3. Burgess, Robin & Stern, Nicholas, 1993. "Taxation and Development," Journal of Economic Literature, American Economic Association, pages 762-830.
    4. Sergio Firpo, 2007. "Efficient Semiparametric Estimation of Quantile Treatment Effects," Econometrica, Econometric Society, vol. 75(1), pages 259-276, January.
    5. Robin Boadway & Motohiro Sato, 2009. "Optimal Tax Design and Enforcement with an Informal Sector," American Economic Journal: Economic Policy, American Economic Association, pages 1-27.
    6. Klepper, Steven & Nagin, Daniel, 1989. "The Anatomy of Tax Evasion," Journal of Law, Economics, and Organization, Oxford University Press, vol. 5(1), pages 1-24, Spring.
    7. Nguyen, Binh T. & Albrecht, James W. & Vroman, Susan B. & Westbrook, M. Daniel, 2007. "A quantile regression decomposition of urban-rural inequality in Vietnam," Journal of Development Economics, Elsevier, pages 466-490.
    8. Whalley John & Kononova Vera, 2010. "Recent Russian Debate on Moving from VAT to Sales Taxes and Its Global Implications," Journal of Globalization and Development, De Gruyter, vol. 1(2), pages 1-27, December.
    9. M. Shahe Emran & Subika Farazi, 2009. "Lazy Banks? Government Borrowing and Private Credit in Developing Countries," Working Papers 2009-09, The George Washington University, Institute for International Economic Policy.
    10. Murray Leibbrandt & James Levinsohn & Justin McCrary, 2005. "Incomes in South Africa since the fall of Apartheid," Working Papers 536, Research Seminar in International Economics, University of Michigan.
    11. James Albrecht & Anders Bjorklund & Susan Vroman, 2003. "Is There a Glass Ceiling in Sweden?," Journal of Labor Economics, University of Chicago Press, vol. 21(1), pages 145-177, January.
    12. Rajaraman, Indira, 2004. "Fiscal restructuring in the context of trade reform," Working Papers 04/7, National Institute of Public Finance and Policy.
    13. Carrillo, Paul & Yezer, Anthony, 2009. "Alternative measures of homeownership gaps across segregated neighborhoods," Regional Science and Urban Economics, Elsevier, vol. 39(5), pages 542-552, September.
    14. Henrik J. Kleven & Martin B. Knudsen & Claus T. Kreiner & Søren Pedersen & Emmanuel Saez, 2010. "Unwilling or Unable to Cheat? Evidence from a Randomized Tax Audit Experiment in Denmark," NBER Working Papers 15769, National Bureau of Economic Research, Inc.
    15. José Mata & José A. F. Machado, 2005. "Counterfactual decomposition of changes in wage distributions using quantile regression," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(4), pages 445-465.
    16. Powell, James L., 1984. "Least absolute deviations estimation for the censored regression model," Journal of Econometrics, Elsevier, vol. 25(3), pages 303-325, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lucie Gadenne, 2017. "Tax Me, but Spend Wisely? Sources of Public Finance and Government Accountability," American Economic Journal: Applied Economics, American Economic Association, pages 274-314.
    2. Julia Cage & Lucie Gadenne, 2014. "Tax Revenues, Development, and the Fiscal Cost of Trade Liberalization, 1792-2006," Sciences Po publications info:hdl:2441/4icc4hr7684, Sciences Po.
    3. 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, pages 144-164.
    4. Gabriela Aparicio & Paul E. Carrillo & M. Shahe Emran, 2013. "Are Sunday Babies Doomed for Life? Measuring the Sunday-Born Achievement Gap in Ecuador," Working Papers 2013-2, The George Washington University, Institute for International Economic Policy.
    5. Julia Cage & Lucie Gadenne, 2014. "Tax Revenues, Development, and the Fiscal Cost of Trade Liberalization, 1792-2006," Sciences Po publications info:hdl:2441/4icc4hr7684, Sciences Po.

    More about this item

    Keywords

    Tax evasion; corporate tax compliance; tax reform; developing country; punishment; Ecuador;

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

    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:gwi:wpaper:2011-02. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kyle Renner). General contact details of provider: http://edirc.repec.org/data/iigwuus.html .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.