Firms Response to Tax Enforcement through Audits


Understanding tax non-compliance and the effect of different enforcement strategies is relevant for improving the efficiency and efficacy of tax policy.  Using administrative data provided by Chile’s tax authority we analyze the dynamic effects of real-world tax audits for the universe of firms.  The results show that audits have significant impacts on the corporate income tax base and sales of audited firms.  The effects are most concentrated among micro firms and last up to one year after the audit.  We exploit the rich panel dataset to alleviate concerns about non-random audits.