Working Paper: CEPR ID: DP17453
Authors: Paul Carrillo; Dave Donaldson; Dina D. Pomeranz; Monica Singhal
Abstract: An important but poorly understood form of firm tax evasion arises from the use of “ghost firms”—fake firms that issue fraudulent receipts so that their clients can claim false deductions. We provide a unique window into this global phenomenon using transaction-level tax data from Ecuador. Ghost transactions are widespread, prevalent among large firms and firms with high-income owners, and exhibit suspiciouspatterns in comparison to ordinary transactions: bunching at round numbers, at the end of the fiscal year, and just below financial system thresholds. We go on to study an innovative enforcement intervention that targeted ghost clients rather than ghosts themselves, which led to substantial tax recovery.
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JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| ghost transactions (H87) | tax evasion (H26) |
| enforcement intervention (K40) | reported tax liabilities (H26) |
| ghost transactions (H87) | reported profits (D33) |
| enforcement intervention (K40) | tax compliance (H26) |
| enforcement intervention (K40) | lower-income individuals (I32) |
| enforcement intervention (K40) | top 1% income earners (D31) |