Tax Audits as Scarecrows: Evidence from a Large-Scale Field Experiment

Marcelo L. Bérgolo, Rodrigo Ceni, Guillermo Cruces, Matias Giaccobasso, Ricardo Perez-Truglia

NBER Working Paper No. 23631
Issued in July 2017, Revised in October 2018
NBER Program(s):Development Economics, Law and Economics, Public Economics

The canonical model of Allingham and Sandmo (1972) predicts that firms evade taxes by optimally trading off between the costs and the benefits of evasion. However, there is still no consensus about whether real-world firms react to audits in this way. We conducted a large scale field experiment in collaboration with Uruguay’s tax authority to shed light on these issues. We sent letters to 20,440 small- and medium-sized firms that collectively pay over 200 million dollars in taxes per year. Our letters provided exogenous yet 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 increase their tax compliance in response to information about audits. However, we do not find these effects to be consistent with Allingham and Sandmo (1972). Our favorite interpretation of our findings is based on the model of risk-as-feelings: audits may deter tax evasion in the same way that scarecrows frighten off birds.

download in pdf format
   (865 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w23631

Users who downloaded this paper also downloaded* these:
Carrera, Royer, Stehr, and Sydnor w23567 Can Financial Incentives Help People Trying to Establish New Habits? Experimental Evidence with New Gym Members
Hansen, Miller, and Weber w23632 The Taxation of Recreational Marijuana: Evidence from Washington State
Gerardino, Litschig, and Pomeranz w23978 Can Audits Backfire? Evidence from Public Procurement in Chile
Benzarti w23903 How Taxing Is Tax Filing? Using Revealed Preferences to Estimate Compliance Costs.
Stango, Yoong, and Zinman w23625 Quicksand or Bedrock for Behavioral Economics? Assessing Foundational Empirical Questions
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us