No Taxation Without Information: Deterrence and Self-Enforcement in the Value Added Tax

49 Pages Posted: 3 Jul 2013 Last revised: 18 Jun 2023

See all articles by Dina Pomeranz

Dina Pomeranz

Harvard University - Business School (HBS)

Date Written: July 2013

Abstract

Tax evasion generates billions of dollars of losses in government revenue and creates large distortions, especially in developing countries. Claims that the VAT facilitates tax enforcement by generating paper trails on transactions between firms have contributed to widespread VAT adoption worldwide, but there is little empirical evidence about this mechanism. This paper analyzes the role of third party information for VAT enforcement through two randomized experiments among over 400,000 Chilean firms. Announcing additional monitoring has less impact on transactions that are subject to a paper trail, indicating the paper trail's preventive deterrence effect. Tax enforcement leads to strong spillovers up the VAT chain, increasing compliance by firms' suppliers. These findings confirm that when evasion is taken into account, significant differences emerge between otherwise equivalent forms of taxation.

Suggested Citation

Pomeranz, Dina, No Taxation Without Information: Deterrence and Self-Enforcement in the Value Added Tax (July 2013). NBER Working Paper No. w19199, Available at SSRN: https://ssrn.com/abstract=2289109

Dina Pomeranz (Contact Author)

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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