Program > Papers by author > Perez-Truglia Ricardo

Tax Audits as Scarecrows. Evidence from a Large-Scale Field Experiment
Marcelo Bergolo  1, 2, *@  , Rodrigo Ceni  1@  , Guillermo Cruces  3@  , Matias Giaccobasso  4@  , Ricardo Perez-Truglia  4@  
1 : Instituto de Economía-Universidad de La Republica  (IECON-UDELAR)  -  Website
Joaquín Requena 1375, Montevideo -  Uruguay
2 : Institute of Labor Economics  (IZA)  -  Website
3 : CEDLAS
4 : UCLA Anderson School of Management  -  Website
Los Angeles USA -  United States
* : Corresponding author

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 their tax compliance in response to information about audits. However, the patterns in these responses are inconsistent with utility maximization. The evidence suggests that, much like scarecrows frighten off birds, audits can be a significant deterrent for tax evaders even though they would be perceived as harmless by a rational optimizer


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