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Administrative procedures as tax enforcement tools

Author

Listed:
  • Cui, Wei
  • Hicks, Jeffrey
  • Wiebe, Michael

Abstract

We study how common administrative procedures affect firm tax evasion. We begin with the counter-intuitive observation that many firms bunch above, rather than below, large notches in China’s corporate income tax. Cross-sectional patterns suggest that administrative procedures in the prepayment and refund system served as de facto enforcement tools that prevented some firms from accessing the reduced tax rates below the notches. Following a regulatory reform that eliminated these procedures, bunching below the notches increased dramatically. The results imply a trade-off between reducing administrative barriers and allowing much taxpayer non-compliance in low-compliance environments.

Suggested Citation

  • Cui, Wei & Hicks, Jeffrey & Wiebe, Michael, 2024. "Administrative procedures as tax enforcement tools," Economics Letters, Elsevier, vol. 237(C).
    • Handle: RePEc:eee:ecolet:v:237:y:2024:i:c:s0165176524001320
    DOI: 10.1016/j.econlet.2024.111649
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    References listed on IDEAS

    as
    1. Pierre Bachas & Mauricio Soto, 2021. "Corporate Taxation under Weak Enforcement," American Economic Journal: Economic Policy, American Economic Association, vol. 13(4), pages 36-71, November.
    2. Cui, Wei & Hicks, Jeffrey & Xing, Jing, 2022. "Cash on the table? Imperfect take-up of tax incentives and firm investment behavior," Journal of Public Economics, Elsevier, vol. 208(C).
    3. Anne Brockmeyer & Spencer Smith & Marco Hernandez & Stewart Kettle, 2019. "Casting a Wider Tax Net: Experimental Evidence from Costa Rica," American Economic Journal: Economic Policy, American Economic Association, vol. 11(3), pages 55-87, August.
    4. Cui,Wei, 2022. "The Administrative Foundations of the Chinese Fiscal State," Cambridge Books, Cambridge University Press, number 9781108491426, January.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Tax administration; Evasion; Bunching;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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