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

Author Info

  • 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
Date of revision:
Handle: RePEc:gwi:wpaper:2011-02
Contact details of provider: Web page: http://www.gwu.edu/~iiep/
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More information through EDIRC

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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  12. 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.
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Cited by:

  1. Paul Carrillo & Dina Pomeranz & Monica Singhal, 2014. "Dodging the Taxman: Firm Misreporting and Limits to Tax Enforcement," Harvard Business School Working Papers 15-026, Harvard Business School.
  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. 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.

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