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Under the Radar: The Effects of Monitoring Firms on Tax Compliance

Author

Listed:
  • Almunia, Miguel

    (University of Warwick and CAGE)

  • Lopez-Rodriguez, David

    (Banco de España)

Abstract

This paper analyzes the effects on tax compliance of monitoring the information trails generated by firms’ activities. We exploit quasi-experimental variation generated by a Large Taxpayers Unit (LTU) in Spain, which monitors firms with more than 6 million euros in reported revenue. Firms strategically bunch below this threshold in order to avoid stricter tax enforcement. This response is stronger in sectors where transactions leave more paper trail, implying that monitoring effort and the traceability of information reported by firms are complements. We calculate that there would be substantial welfare gains from extending stricter tax monitoring to smaller businesses.

Suggested Citation

  • Almunia, Miguel & Lopez-Rodriguez, David, 2015. "Under the Radar: The Effects of Monitoring Firms on Tax Compliance," CAGE Online Working Paper Series 245, Competitive Advantage in the Global Economy (CAGE).
    • Handle: RePEc:cge:wacage:245
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    More about this item

    Keywords

    tax enforcement; firms; bunching; Spain; Large Taxpayers Unit (LTU) JEL Classification: H26; H32;
    All these keywords.

    JEL classification:

    • 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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