Enlisting Employees in Improving Payroll Tax Compliance: Evidence from Mexico

Abstract

Comparing two sources of wage data in Mexico — firms' reports to the social security agency and individuals' responses to a household survey — we document extensive under-reporting of wages by formal firms, with compliance better in larger firms. We also present evidence that the 1997 Mexican pension reform, which tied pension benefits more closely to reported wages for younger workers, led to a relative decline in under-reporting for younger age groups. The results suggest that giving employees incentives and information to improve the accuracy of employer reports can be an effective way to improve payroll-tax compliance.

Consumers as Tax Auditors

“…This paper contributes to the vast literature on tax enforcement (e.g., Andreoni, Erard, and Feinstein 1998;Slemrod and Yitzhaki 2002) by providing evidence on how a policy can tap into local information on tax evasion, and leverage frictions to collusion in order to increase compliance in a hard-to-tax sector. In particular, this paper contributes to a growing literature that argues that third-party information is key for compliance (Kleven et al 2011;Pomeranz 2015;Kumler, Verhoogen, and Frias 2012). Additionally, the paper contributes to the literature on the challenges of tax enforcement in developing countries, which is believed to be a key determinant of countries' choices of tax instruments (e.g., Gordon and Li 2009, Best et al 2015, Jensen 2019.…”

The Impact of Corporate Taxes on Firm Innovation: Evidence from the Corporate Tax Collection Reform in China

“…One important reason of low tax revenue is weak tax enforcement, and several theory papers suggest that policy-makers can use tax enforcement instead of explicitly changing tax rates as a tax instrument (Kaplow (1990)). There are a growing number of papers showing that tax enforcement can be improved by providing performance pay incentives to tax inspectors (Besley and McLaren (1993); Khan, Khwaja, and Olken (2016)), introducing third party reporting to improve information available on tax payers (Kleven et al (2011); Kumler, Verhoogen, and Frias (2015); Naritomi (2016); Pomeranz (2015); Kopczuk et al (2016)), and offering auditing (Slemrod, Blumenthal, and Christian (2001). However, another important but not well-explored factor affecting tax enforcement is the incentive of local governments and tax agencies.…”

How do taxpayers respond to a large kink? Evidence on earnings and deduction behavior from Austria

“…When analyzing self-employed taxpayers, I use the terms gross and taxable income. 3 It has been frequently shown that underreporting of wages and collusive behavior significantly declines with increasing firm size (Kleven et al 2011;Kumler et al 2015).…”

“…It has been frequently shown that underreporting of wages and collusive behavior declines with increasing firm size(Kleven et al 2011, Kumler et al 2015. AppendixFig.…”