Consumers as Tax Auditors - December, 2013

Abstract: This paper provides quasi-experimental evidence on whether consumers can help governments monitor firms and collect taxes. I exploit an anti-tax evasion program from Sao Paulo, Brazil - Nota Fiscal Paulista - that created monetary rewards for consumers to ask for receipts. I construct 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. I use variation in treatment intensity across sectors to estimate that the program increased the revenue reported in retail sectors by at least 22% over four years. I find no effects on exit rates or formal employment decisions as a result of the rise in enforcement. I consider potential mechanisms by studying heterogeneity across sectors and establishments, and by analyzing consumer responses to the rewards. 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. Furthermore, the effect of the program has an inverted-U shape with respect to firm size. This result is consistent with a model of higher baseline compliance among larger firms, and in which shifts in audit probability from consumer monitoring increase in firm size. Additionally, I use 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. The evidence is consistent with the possibility that lotteries amplify consumer responses due to behavioral biases. I conclude by discussing the cost-effectiveness of the rewards program and implications for tax policy.


Naritomi J, Soares RR, Assunção J. Institutional Development and Colonial Heritage within Brazil. The Journal of Economic History. 2012;72(2 ):393-422. paper

media coverage: Salon and Marginal Revolution

Soares RR, Naritomi J. Understanding High Crime Rates in Latin America: The Role of Social and Policy Factors. In: Tella RD, Edwards S, Ernesto Schargrodsky The Economics of Crime: Lessons for and from Latin America. Vol. 0-226-15374-6 . University of Chicago Press; 2010. p. 19 - 55. paper


"Tax Enforcement, Liquidity Constraints and Firm Size Distribution: Evidence from Brazil",  with Gabriel Ulyssea