Firm Networks and Tax Compliance: Experimental Evidence from Uganda
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Date
2024-02-08
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Abstract
How do tax enforcement interventions diffuse through firm-to-firm networks? We explore
this question with a randomized trial in Uganda. Using transaction-level VAT data, we
map seller-buyer networks and identify discrepancies in the amounts reported by trading
partners. Enforcement letters highlighting these discrepancies are sent to either the
seller, the buyer, or both. The correction rate in the treatment group is 23.8%, fourteen
times higher than in the control group. This response is asymmetric: corrections
are primarily made by sellers, even when only buyers receive letters, providing novel
evidence that firms can induce changes in their partners’ tax reporting. Spillover effects
extend to transactions not listed in the letters, including those involving other trading
partners. The intervention also results in sustained improvements in reporting behavior
over subsequent months. Our study sheds light on firm-to-firm communication within
networks and offers policy-relevant insights for fighting tax evasion.
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Almunia, M., Henning, D., Knebelmann, J., Nakyambadde, D., & Tian, L. (2024). Firm Networks and Tax Compliance: Experimental Evidence from Uganda.