The Impact of Low-Cost Intervention on Tax Compliance: Regression Discontinuity Evidence

This paper examines the effectiveness of low-cost tax enforcement on compliance using administrative data from Ecuador. To overcome confounding factors, I use a regression discontinuity design that exploits a discrete increase in the probability of receiving a non-compliance notification. Results indicate that the notification significantly increases taxes paid by around $1,400, or 70 percent. Additional findings suggest that this intervention also increases taxes reported in the year following it, and that some taxpayers strategically attempt to evade taxes while trying to avoid being notified. Collectively, these findings suggest that inexpensive interventions can substantially improve tax compliance in low-income countries