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on Central and South America |
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Issue of 2019‒11‒11
two papers chosen by |
| By: | Marcelo Bergolo (IECON-UDELAR); Rodrigo Ceni (IECON-UDELAR); Guillermo Cruces (Centro de Estudios Distributivos, Laborales y Sociales (CEDLAS), IIE-FCE, Universidad Nacional de La Plata and University of Nottingham); Matias Giaccobasso (University of California, Los Angeles); Ricardo Perez Truglia (University of California, Los Angeles) |
| Abstract: | The canonical model of Allingham and Sandmo (1972) predicts that firms evade taxes by optimally trading off between the costs and benefits of evasion. However, there is no direct evidence that firms react to audits in this way. We conducted a large-scale field experiment in collaboration with Uruguay’s tax authority to address this question. We sent letters to 20,440 small- and medium-sized firms that collectively paid more than 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 measured 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, based on administrative data. We find that providing information about audits had a significant effect on tax compliance but in a manner that was inconsistent with Allingham and Sandmo (1972). Our findings are consistent with an alternative model, risk-as-feelings, in which messages about audits generate fear and induce probability neglect. According to this model, audits may deter tax evasion in the same way that scarecrows frighten off birds. |
| JEL: | C93 H26 K34 K42 Z13 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:dls:wpaper:0254&r=all |
| By: | Martín Caruso Bloeck; Sebastian Galiani; Federico Weinschelbaum |
| Abstract: | Strategies based on growth and inequality reduction require a long-run horizon, and this paper therefore argues that those strategies need to be complemented by poverty alleviation programs. With regards to such programs, informality in Latin America and the Caribbean is a primary obstacle to carry out means testing income-support programs, and countries in the region have therefore mostly relied on proxy means testing mechanisms. This paper studies the relative effectiveness of these and other mechanisms by way of a formal model in which workers choose between job opportunities in the formal and informal sectors. Although the means testing mechanism allows for a more pro-poor design of transfers, it distorts labor decisions made by workers. On the other hand, (exogenous) proxy means testing does not cause distortions, but its pro-poor quality is constrained by the power of observable characteristics to infer income levels. However, since taxation is necessary to fund programs, redistribution becomes less effective, especially for programs other than means testing. The paper concludes by discussing the implications of these results for the design of more efficient targeting programs. |
| Keywords: | Poverty, inequality, means testing, proxy means testing, Latin America and the Caribbean |
| JEL: | J38 I38 |
| Date: | 2019–10–31 |
| URL: | http://d.repec.org/n?u=RePEc:col:000518:017583&r=all |