Spillover Effects of Tax Enforcement on Production Networks: Evidence from Paraguay

Our intervention is a modified version of the intervention studied by Carrillo et al (2017) in Ecuador. Among the eligible taxpayers, taxpayers were randomly selected to be sent a notice. The notice presents taxpayers with a summary by month of their reported sales, the purchases reported by their clients, and the discrepancies between them. The invoices underlying the purchases reported by clients are attached as an annex to back up the discrepancies. The notice then requests that the taxpayer file amendments of the relevant tax returns to address the inconsistencies.

We made two modifications to the notifications studied by Carrillo et al (2017). First, we strengthened the language used. Specifically, the notices emphasized that the request was for the taxpayer to file an amendment to their tax return in which they increase their reported sales to account for the discrepancy, but not make any other amendments to their return. This was intended to avoid taxpayers simultaneously increasing their reported purchases. Second, the notices were accompanied by greater follow-up and sanctions for non-response. In particular, auditors were assigned to follow up on each case. If the taxpayer responded but did not amend or amended only partially, the auditors reviewed the case and made a determination about whether to accept the partial response. If the taxpayer did not respond by the 10-day deadline, or responded unsatisfactorily, the auditor blocked the taxpayer's ID ("RUC"). Blocked IDs are not able to request more tax invoices, and are unable to perform a range of other processes with the tax authority (though they are still able to file and amend returns), potentially disrupting business activities for non-compliant taxpayers, especially larger ones that rely more on being able to issue tax invoices and have more complicated interactions with the tax authority.

2024-12-02

2025-06-01

Amendments: Do taxpayers amend their tax returns? If so, do they amend their reported sales? Reported purchases? Does this increase their tax liability and tax payments?
Tax returns: In their tax returns filed after the intervention, do taxpayers report different amounts of sales? Purchases? Does this increase their tax liability and tax payments?
Bilateral flows: Does the intervention change whom taxpayers report buying and selling from?
: Is the discrepancy between the taxpayer's VAT total reported sales and the sum of its buyers' bilateral purchase reports reduced by the intervention? Is the discrepancy between each of the taxpayer's bilateral sales reports and the corresponding bilateral purchase report by its buyer reduced by the intervention? Are the related discrepancies on the side of the taxpayer's purchases changed by the intervention?

The randomization protocol is described in detail in the pre-analysis plan. In brief, the randomization occurs in two stages amongst the eligible pool of 62,344 taxpayers.

In stage 1 we select focal units and then randomly assign their clients and/or suppliers to treatment.
In stage 2 we focus on estimating the direct effect of the notices by focusing on anticliques: taxpayers who are not connected to other eligible taxpayers and who are not connected to any of the focal taxpayers from stage 1. In the anticliques we perform stratified random assignment to treatment, stratifying by size, degree, and baseline amendment propensity.

Full details of the procedure are available in the (public) pre-analysis plan included with this registration.

randomization done in an office on a computer.

firms.

No

5,000 firms assigned to treatment out of 53,762 eligible firms (see PAP for eligibility description)

5,000 firms assigned to treatment out of 53,762 eligible firms (see PAP for eligibility description)

53,762 eligible firms (see PAP for eligibility description)

power calculations done by simulation as described in PAP of this and previous experiment.

Pre-Analysis Plan