Research

The collection of value added tax (VAT) is essential for achieving domestic revenue objectives, yet VAT gap estimation is rarely performed in developing countries. This study utilizes innovative tax declaration and audit data to estimate VAT misreporting in Tanzania, applying a machine learning approach to predict evasion in unaudited firms and periods. We measure the underreporting component of the compliance gap, quantifying potential revenue losses due to inaccurate reporting. Our findings indicate that firms often avoid excessive audits, leading to increased evasion, with those firms showing the largest VAT gaps. We estimate a 62% VAT gap among small and medium-sized enterprises in Tanzania. Finally, we present a cost-benefit ratio, suggesting that while auditing sectors with large VAT gaps is cost-effective, those contributing significantly to the overall VAT gap should also be prioritized for revenue generation.

Presented at the IIPF Annual Conference 2024*, Wider Development conference 2023, FIT seminar (Tampere) 2023.

This research examines the impact of occupational choices and tax evasion on the tax administration policy in a hierarchical tax model. The economy has two sectors, wage-earners and self-employment, with evasion only possible in the latter. Incorporating occupational decisions produces a smaller marginal tax rate and a larger budget for the IRS. However, the resources are still insufficient to audit all self-employed, resulting in distortions in occupational choices favoring self-employment. These distortions prevent production efficiency from achieving the optimum level, indicating that the Diamond-Mirrlees theorem is not applicable in this context. Finally, applying differential taxation represents a Pareto improvement, but it results in higher taxes for self-employment.

Presented at Universidad Alberto Hurtado (Chile), IIPF Anual Conference 2021, SECHi Annual Meeting 2021, and LACEA/LAMES 2021. 

We analyze the impact of an expansion in government aid for higher education in Chile in a sample of elementary and high school students. Using students who had an alternative source of funding as a control group, and administrative records before and after the reform, we present evidence that students are affected in different ways. First, we show that parents of students who ex ante were more likely to be credit restricted are more likely after the reform to report that their child ends up completing college. Second, we find that students in the same groups that increase their college expectations, obtain a score in high-stakes examination that actually qualified them for college aid. Third, we find that lifting future credit restrictions reduces the probability of dropping out of high school.

This paper studies the causal effect of income tax evasion opportunities on the self-employment decision. Two peculiarities of the Chilean scheme enable us to identify this effect. First, in the Chilean tax design, self-employed and wage-earners are levied with equal marginal taxes, eliminating the differential tax effect. We disentangle two channels through an occupational choice model: taxable income and evasion. Second, we exploit a tax reform that exogenously affects agents' evasion decisions. Following a consumption-based approach, we obtain a tax evasion measure, and estimate two behavioral parameters: (i) the evasion elasticity to marginal tax rate equals 1.4; (ii) an increase of 1 percentage point in the evasion opportunity makes being self-employed 6.1 percentage points more likely. The evasion opportunity is a crucial determinant of the self-employment response to the policy change, mainly driven by agents' behavior near the first income bracket. While women-headed households' evasion behavior is less sensitive to a tax change, having higher education primarily drives this behavior. 

Presented at the RIDGE Labor Workshop 2021*, SECHi Annual Meeting 2022*, Pontificia Universidad Católica de Chile, LACEA/LAMES 2021, Universitat de les Illes Balears, RIDGE Workshop on Public Economics 2022, IIPF Anual Conference 2022, Helsinki GSE, FIT Workshop 2022, SECHi Annual Meeting 2023* , Economics of Informality Conference 2022*, LACEA/LAMES 2023*, and M-NEW Annual Workshop*.

*Presented by Romina

Different tax evasion possibilities in occupations affect agents' employment decisions with welfare implications, being critical elements for accurately measure the welfare consequences of tax changes. In the context of progressive piecewise tax schemes and tax evasion, this paper studies the welfare effects of tax changes incorporating those elements previously omitted in the literature. We model an economy with occupational decisions and a piecewise progressive tax scheme, where self-employed can bunch at the income bracket threshold declaring less income to face a smaller marginal tax rate than they owe. Later, we characterize the welfare effect of tax change, allowing for evasion, occupational decisions, and introducing frictions originating from the tax system characteristics, particularly bunching. Those elements produce a divergence with the elasticity of taxable income or total earned income. We propose a new metric to estimate the marginal change in welfare based on a trapezoid, complementing the traditional Harberger's triangle measure. Considering a tax reform in Chile, we estimate the welfare change of this reform, demonstrating the relevance of incorporating occupational decisions and tax evasion for welfare measurement.

Presented at the IIPF Annual Conference 2024, Brown Bag University. of Chile (Econ), Alberto Hurtado University.

*Presented by Romina

Corporate tax filings encompass various auxiliary data reports that firms are required to provide along with their reports on profit. Modern tax theory acknowledges that tax enforcement in information-rich economies should be guided by both, to optimally target audits. Since variable enforcement standards can encourage data distortion, we extend the theory of tax enforcement to strategic data reporting. Our main finding is that, although the primary goal of tax audit is to ensure truthful profit reporting, optimal audit policy cannot be implemented without also monitoring data reports. We present cautionary examples showing that neglecting data manipulation can result in a larger tax gap than disregarding firm-reported data entirely in tax enforcement. The characterized optimal tax enforcement policy for strategic data reporting involves a novel distortion at the top and non-constant penalties for evasion. Linear penalties emerge as a special case when data are irrelevant for auditing.

Presented at the IIPF Annual Conference 2024, University of Chile (DCS).

*Presented by Saara or Eduardo

El agrupamiento de estudiantes por sus habilidades o capacidades, denominado tracking, puede ser una herramienta relevante para mejorar su rendimiento académico. Lo anterior debido a que permitiría focalizar la enseñanza en estudiantes que necesiten reforzar conocimientos, a la vez que puede alentar a estudiantes más hábiles a profundizar en ellos. También, el agrupamiento elementos pueden permitir que el estudiante conozca áreas del conocimiento que le faciliten decisiones vocaciones futuras. Dado lo anterior, en este documento indagamos en los aspectos positivos y negativos del tracking tanto dentro de una escuela como entre escuelas. El foco principal radica en el mejoramiento de habilidades y capacidades de los estudiantes, así como también el acceso a información y formación de habilidades vocaciones útiles. Se examinará la literatura relevante en torno al tema, analizando la comparación entre países, los modelos teóricos desarrollados, y el análisis entre escuelas y dentro de la escuela. Dado que es una política que implica una reasignación de estudiantes la mayoría de la evidencia explota políticas ya realizadas. Dado lo anterior, nos remetiremos a ocupar la evidencia en términos generales, más que aventurarnos a hablar de resultados esperados.