Research

Abstract: This paper studies the real economic consequences of offshore tax evasion by wealthy individuals. Exploiting an increase in the probability of detecting offshore wealth following the 2016 Panama Papers leak, I find that Colombian firms owned by individuals using offshore vehicles increase retained earnings and use this additional liquidity to expand capital, leading to higher sales and net income two years later. These effects are larger among owner-managed firms, where shocks to owners are more likely to influence firm decisions. Higher net income also generates fiscal spillovers through increased corporate income tax (CIT) revenues. These gains are economically meaningful: the additional CIT revenue amounts to 1.4% of baseline CIT revenues, nearly matching previous estimates of Colombia's tax revenue losses from profit shifting. Overall, these findings show that offshore tax enforcement can stimulate domestic capital accumulation and firm growth, generating economic and fiscal benefits beyond improved wealth tax compliance.

Abstract: This paper studies how value-added taxes (VAT) distort firms’ labor outsourcing decisions and the implications for in-house employment and firm performance. To do so, we use a unique input-output dataset from Chile and a matching difference-in-differences design that exploits variation from a tax policy reform that increased VAT on professional service purchases.  We first document a partial pass-through of VAT into prices net of taxes charged by professional service providers. In response to these higher input costs, firms reduce outsourcing of professional services along both extensive and intensive margins and substitute toward in-house employment. We find no effects of this reallocation on firms’ growth or efficiency. Overall, our findings provide new evidence on the incidence of VAT on firms' make-or-buy decisions, challenging the traditional neutrality of VAT under full input tax crediting.

Abstract: We examine the relationship between inequality and state capacity, measured with tax collection. Contrary to traditional models that emphasize the redistributive role of taxation, we focus on its role in providing public goods that help develop markets, increasing productivity (e.g. enforcement of property rights, coordination, roads, electricity). We build a simple model of public good provision where landowners decide whether or not to comply with property taxes taking into account: (i) that government expenditure increases property values, and (ii) their expectation of the punishment when evading taxes. We validate the model empirically, using data from Colombian municipalities between 1923 and 1960, in two ways. First, we use detailed land values' data from cadastres available for a subsample of municipalities and the model's structure to predict tax revenues and compare them with actual revenues. Second, we show evidence in favor of the main model predictions: land concentration is positively correlated with tax revenues per capita, and negatively correlated with the average fiscal cost of collecting one peso. These correlations are robust to controlling for measures of potential sources of omitted variable bias. Moreover, they are stronger for places that stand more to gain from the development of markets.