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

Author Info

Listed author(s):
  • 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.

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File URL: http://www.gwu.edu/~iiep/assets/docs/papers/Carrillo_IIEPWP2011-02.pdf
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Paper provided by The George Washington University, Institute for International Economic Policy in its series Working Papers with number 2011-02.

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Length: 38 pages
Date of creation: Apr 2011
Handle: RePEc:gwi:wpaper:2011-02
Contact details of provider: Web page: http://www.gwu.edu/~iiep/
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Keywords: Tax evasion; corporate tax compliance; tax reform; developing country; punishment; Ecuador;

Find related papers by 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

This paper has been announced in the following NEP Reports:

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  1. Robin Boadway & Motohiro Sato, 2009. "Optimal Tax Design and Enforcement with an Informal Sector," American Economic Journal: Economic Policy, American Economic Association, vol. 1(1), pages 1-27, February.
  2. Emran, M. Shahe & Stiglitz, Joseph E., 2005. "On selective indirect tax reform in developing countries," Journal of Public Economics, Elsevier, vol. 89(4), pages 599-623, April.
  3. Burgess, Robin & Stern, Nicholas, 1993. "Taxation and Development," Journal of Economic Literature, American Economic Association, vol. 31(2), pages 762-830, June.
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  5. 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.
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  7. 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.
  8. 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.
  9. 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.
  10. 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.
  11. Rajaraman, Indira, 2004. "Fiscal restructuring in the context of trade reform," Working Papers 04/7, National Institute of Public Finance and Policy.
  12. 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.
  13. 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.
  14. 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.
  15. Powell, James L., 1984. "Least absolute deviations estimation for the censored regression model," Journal of Econometrics, Elsevier, vol. 25(3), pages 303-325, July.
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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, vol. 9(1), pages 274-314, January.
  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, vol. 9(2), pages 144-164, April.
  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.

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