Production versus Revenue Efficiency with Limited Tax Capacity: Theory and Evidence from Pakistan

By Michael Best, A. Brockmeyer, H. Kleven, Johannes Spinnewijn, Mazhar Waseem. Journal of Political Economy, 2015

263 citations recorded by the source corpus.

To fight evasion, many developing countries use production-inefficient tax policies. This includes minimum tax schemes whereby firms are taxed on either profits or turnover, depending on which tax liability is larger. Such schemes create nonstandard kink points, which allow for eliciting evasion responses to switches between profit and turnover taxes using a bunching approach. Using administrative data on corporations in Pakistan, we estimate that turnover taxes reduce evasion by up to 60–70 percent of corporate income. Incorporating this in a calibrated optimal tax model, we find that switching from profit to turnover taxation increases revenue by 74 percent without reducing aggregate profits.

Subfields: Accounting, Economics and Econometrics, Gender Studies

View Paper: https://www.semanticscholar.org/paper/bfe0ef1c5934be14ef70120dcc84c0bf3088c7ad

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Citations in the corpus

Notching R&D Investment with Corporate Income Tax Cuts in China (2018, background): “We find that governments may prefer to deviate from standard incentives in the presence of relabeling (e.g., Best et al., 2015).”
Elite Capture of Foreign Aid: Evidence from Offshore Bank Accounts (2020, unknown): “…with our finding that aid disbursements trigger larger flows to havens when perceived expropriation risks are low and with the stylized fact that firms in developing economies have ample scope for tax evasion through simple misreporting without any use of offshore accounts (e.g., Best et al. 2015).”
Tax me, but spend wisely? Sources of public finance and government accountability (2015, background): “…that part of the correlation between tax capacity and economic development 4See for example de Paula and Scheinkman (2010), Olken and Singhal (2011), Carrillo et al. (2011), Kumler et al. (2015), Pomeranz (2015), Best et al. (2015), Naritomi (2015), Khan et al. (2015), Cagé and Gadenne (2015).”
Are Less Developed Countries More Exposed to Multinational Tax Avoidance? Method and Evidence from Micro-Data (2019, unknown): “Best et al. 2015; Johnson et al. 2000).”
Under the Radar: The Effects of Monitoring Firms on Tax Compliance (2018, background): “In their setting, kinks are set in terms of taxable profits, whereas in the Spanish case the tax incentive depends on operating revenue, which is considered less easily manipulable (Best et al., 2014; Carrillo, Pomeranz, and Singhal, 2014).”
Taking State-Capacity Research to the Field: Insights from Collaborations with Tax Authorities (2019, unknown): “Best et al. (2015) study the tradeoff between production efficiency and revenue efficiency, i.e. efficiency for tax collection.”
Consumers as Tax Auditors (2019, background): “Additionally, the paper contributes to the literature on the challenges of tax enforcement in developing countries, which is believed to be a key determinant of countries’ choices of tax instruments (e.g., Gordon & Li 2009; Best et al. 2015; Jensen 2019).”
The Participation Dividend of Taxation: How Citizens in Congo Engage More with the State When it Tries to Tax Them* (2020, background): “2015), and reducing bureaucratic barriers to compliance (Kleven and Waseem 2013; Best et al. 2015).”