Non-compliance notifications and taxpayer strategic behavior: evidence from Ecuador

This paper examines the effect of enforcement on taxpayer behavior using administrative data from Ecuador. To overcome confounding factors, a regression discontinuity design that exploits a discrete increase in the probability of receiving a non-compliance notification is used. Results indicate that the notification significantly increases reported taxes but does not affect tax revenues. The evidence suggests that refiling explains this situation. Additional findings indicate 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 continuous monitoring and limiting refiling might reduce tax evasion, especially in developing countries.