Consumers as Tax Auditors? Evidence from an Anti Tax-evasion Program in Brazil

Featuring
Joana Naritomi
Harvard University

Can consumers help governments monitor firms and collect taxes? Joana Naritomi will present a new paper in which she exploits an anti-tax evasion program from Sao Paulo, Brazil that created lottery-based monetary rewards for consumers who ask for receipts. She constructed administrative datasets for over 1 million firms, 40 million people, and 2.7 billion receipts to investigate how consumer monitoring can improve firm-level compliance.

Naritomi estimates that the program increased the revenue reported in retail sectors by at least 22% over four years. She finds that the estimated effect of the program is stronger for sectors with a high volume of transactions and small receipt values, consistent with a model in which there are fixed costs to negotiate collusive deals to avoid issuing receipts. Moreover, she uses variation from lottery rewards to show that consumers condition their participation on past lottery wins, and respond to increases in the expected rewards of the program. Additionally, she discusses the cost-effectiveness of the rewards program and implications for tax policy.