Topic：Detection Without Deterrence: Long-Run Effects of Tax Audit on Firm Behavior
Speaker：Waseem Mazhar, Associate Professor, The University of Manchester, UK
Moderator：Xiandeng Jiang, Associate Professor, School of Public Finance and Taxation, SWUFE
Time：March 31, 2022 (Thursday) 18:30
Virtual Platform：Tencent Meeting ID 287-305-025
Organizers：School of Public Finance and Taxation, Office of International Exchange and Cooperation, Research Office
Waseem Mazhar is an Associate Professor of Economics at the University of Manchester. His research is primarily focused on Public Finance issues of emerging economies. He is interested in understanding the behavior of economic agents to tax and transfer policies with a view to learn how the design of these policies, especially in weak enforcement environments, can be improved. He holds a Ph.D. in economics from the London School of Economics. He has published research papers in Journals such as Quarterly Journal of Economics, Journal of Political Economy, Journal of Public Economics, Review of Economics and Statistics.
We exploit a program of randomized audits covering the entire population of VAT filers from Pakistan to study how much evasion audit detects and how much evasion it deters by changing behavior. We document substantial evasion at the baseline: almost one-third of firms engage in tax evasion, and conditional on some evasion, the average evasion rate exceeds 40 percent. We find remarkable heterogeneity in evasion by firm size with the evaded amount exceeding the reported liability in the bottom three quartiles but is merely 7 percent in the top. Despite detecting substantial liabilities, audit does not deter tax evasion. Examining more than ten outcomes, we detect no effect of audit on proximate or distant behavior. We offer an explanation of the detection-without-deterrence result and discuss its optimal policy implications.