No Taxation without Information

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.

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Overview
Status
Results
Country
Chile
Program area
Public Finance, Political Economy
Topics
Taxation, Tax Evasion, VAT, Tax System, Business Taxes, Economic Development
Partners
Chilean Tax Authority, Swiss Study Foundation, David Rockefeller Center for Latin American Studies, Project on Justice Welfare and Economics
Study type
Experiment
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Researchers
Dina Pomeranz
Zurich CED

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Involved partners

SwissRe
UZH

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