Anderson School of Management - UCLA
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NBER Working Papers and Publications
|July 2017||Tax Audits as Scarecrows: Evidence from a Large-Scale Field Experiment|
with Marcelo L. Bérgolo, Rodrigo Ceni, Guillermo Cruces, Ricardo Perez-Truglia: w23631
According to the canonical model of Allingham and Sandmo (1972), firms evade taxes by making a trade-off between a lower tax burden and higher expected penalties. However, there is still no consensus about whether real-world firms operate in this rational way. We conducted a large-scale field experiment, sending letters to over 20,000 firms that collectively pay over 200 million dollars in taxes per year. In our letters, we provided firms with exogenous but nondeceptive signals about key inputs for their evasion decisions, such as audit probabilities and penalty rates. We measure the effect of these signals on their subsequent perceptions about the auditing process, based on survey data, as well as on the actual taxes paid, according to administrative data. We find that firms do increase t...