Value Added Tax Evasion, Auditing and Transactions Matching
Rutgers University WP 96-07
38 Pages Posted: 12 Nov 1996
Date Written: July 1996
Abstract
This paper extends the standard theoretical model of tax enforcement by allowing for the cross-matching of transactions in addition to the auditing of taxpayers. For the Value Added Tax (VAT) the matching of purchase and sales invoices is an important enforcement technique. The paper examines the impact of such enforcement on the revenue effectiveness and efficiency consequences of the VAT. Transactions matching is shown to have very different effects from auditing: Even when auditing alone is unable to induce non-zero taxpayer reports, and regardless of the expected success rate in auditing of the tax administration, sufficiently intensive cross-matching can induce truthful reporting. On the other hand, matching leads to distorted purchase and sales transactions. It can also distort input use and output decisions even if auditing alone has no adverse effects. In the model, conditions under which the VAT leaves input prices undistorted are found and the content of the often made claim, that a VAT is self-enforcing, is explored. The ability of the tax administration to enforce compliance with the VAT is shown to be sensitive to the knowledge that the tax administration has about the production technology.
JEL Classification: H26, H25, H20
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of The1986 Tax Reform Act
-
Tax Avoidance, Evasion, and Administration
By Joel B. Slemrod and Shlomo Yitzhaki
-
The Elasticity of Taxable Income: Evidence and Implications
By Jonathan Gruber and Emmanuel Saez
-
What Happens When You Tax the Rich? Evidence from Executive Compensation
-
A New Method of Estimating Risk Aversion
By Raj Chetty
-
Reported Incomes and Marginal Tax Rates, 1960-2000: Evidence and Policy Implications
-
Are "Real" Responses to Taxes Simply Income Shifting between Corporate and Personal Tax Bases?
By Roger H. Gordon and Joel B. Slemrod