Working Paper: NBER ID: w27770
Authors: Yazan Alkarablieh; Evangelos Koumanakos; Stefanie Stantcheva
Abstract: We use a new dataset of the universe of Greek corporate tax returns to study a voluntary tax compliance program for small firms. This “self-assessment” program prescribed target taxable profit margins (the ratio of taxable profits to revenues) for different types of activities. Firms that reported profit margins above these targets in a given year were exempt from audits in that year. We find that the firms that take up the program report significantly larger taxable profits than non-eligible firms, with some evidence for longer-lasting effects on tax reporting. Firms that take up the program for more years exhibit stronger effects. We also find that firms can easily and substantially manipulate reported revenue (decreasing it by up to 40%) to help meet prescribed profit margins without paying more in taxes. Overall, the program increased tax revenues collected from small firms, but points to a very large level of baseline under-reporting of profits and the ease of manipulating reported revenues.
Keywords: Tax Compliance; Small Firms; Self-Assessment; Greece
JEL Codes: H20; H25; H26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Reported revenues manipulation (H27) | Tax compliance outcomes (H26) |
| Reported taxable profits (D33) | Tax compliance outcomes (H26) |
| Self-assessment program participation (H55) | Tax compliance outcomes (H26) |
| Self-assessment program participation (H55) | Reported taxable profits (D33) |
| Self-assessment program participation (H55) | Tax revenues collected from small firms (H32) |
| Self-assessment program participation (H55) | Adjustment of reported taxable profits (H32) |