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

Out­line

Claims that the VAT fa­cil­i­tates tax en­force­ment by gen­er­at­ing pa­per trails on trans­ac­tions be­tween firms con­tributed to wide­spread VAT adop­tion world­wide, but there is sur­pris­ing­ly lit­tle ev­i­dence. 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. This leads to strong en­force­ment spillovers up the VAT chain. These find­ings con­firm that when tak­ing eva­sion into ac­count, sig­nif­i­cant dif­fer­ences emerge be­tween oth­er­wise equiv­a­lent forms of tax­a­tion.

Re­search Team

Author

Dina Pomeranz

Assistant Professor of Microeconomics, endowed by the UBS Center

Zurich ZCED