Abstract

Are firms sophisticated maximizers, or do they consistently make errors? Using transaction-level data from Ugandan value-added tax (VAT) returns, we show that sellers and buyers report different amounts 79% of the time, despite invoices being easily cross-checked. We estimate that 25% of firms are disadvantageous misreporters -- they systematically misreport own sales and purchases such that their tax liability increases -- while 75% are advantageous misreporters. Many firms -- especially disadvantageous misreporters -- fail to report imported inputs they themselves reported at Customs, increasing their VAT liability. On net, unilateral VAT misreporting cost Uganda about US$384 million in foregone 2013-2016 tax revenue.

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Citation

Almunia, Miguel, Jonas Hjort, Justine Knebelmann, and Lin Tian. "Strategic or Confused Firms? Evidence from 'Missing' Transactions in Uganda." Accepted at Review of Economics and Statistics, July 2021.

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