Thursday, November 11, 2021
Dina Pomeranz (Zurich; Google Scholar) presents Ghosting the Tax Authority: Fake Firms and Tax Fraud (with Paul Carrillo (George Washington; Google Scholar), Dave Donaldson (MIT; Google Scholar) & Monica Singhal (UC-Davis)) today as part of the OMG Transatlantic Tax Talks Series (OMG = Oxford-Michigan-MIT-Munich-Georgetown):
Billions of dollars in tax revenue are lost annually due to tax fraud using "ghost firms". These fake firms issue fraudulent receipts for false deductions. We provide a window into this global phenomenon by exploiting transaction-level tax data and an innovative policy experiment in Ecuador. Over 5\% of incorporated firms make purchases from ghost firms. These client firms are large and disproportionately owned by high-income individuals. An enforcement campaign, which targeted the client firms rather than chasing ghost firms directly, led to over 25 million USD in additional tax reported from 435 firms within 3 months.
Finally, we find evidence that requiring transactions to occur through the formal financial sector creates a barrier to illegal activity.