No Taxation without Information: Deterrence and Self-Enforcement in the Value Added Tax
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.
-
-
Copy CitationDina Pomeranz, "No Taxation without Information: Deterrence and Self-Enforcement in the Value Added Tax," NBER Working Paper 19199 (2013), https://doi.org/10.3386/w19199.Download Citation
Published Versions
Pomeranz, Dina. 2015. "No Taxation without Information: Deterrence and Self-Enforcement in the Value Added Tax." American Economic Review, 105(8): 2539-69. citation courtesy of 
Related
Programs
Working Groups
More from the NBER
In addition to working papers, the NBER disseminates affiliates’ latest findings through a range of free periodicals — the NBER Reporter, the NBER Digest, the Bulletin on Health, and the Bulletin on Entrepreneurship — as well as online conference reports, video lectures, and interviews.
