Abstract
This paper studies the effect of a tax amnesty on subsequent property tax compliance in Argentina. Using individual-level tax data from an administrative panel, we compare taxpayers from a municipality that implemented an amnesty to taxpayers in unaffected neighboring municipalities as a control group. Applying a difference-in-differences approach, we find a slight increase in compliance following the amnesty. Taxpayers in the amnesty municipality exhibit a 2 percentage point rise in compliance compared to those in the control municipalities. The overall compliance increase consists of two components: (i) a significant and lasting improvement in compliance among taxpayers who enroll in an amnesty payment plan, and (ii) a minor increase in compliance among non-enrolled taxpayers. Enrollees’ enhanced compliance is partially driven by a higher adoption of an alternative pay-in-advance method that facilitates compliance. We also analyze the selection patterns for amnesty participation and find that enrollees are wealthier and had somewhat higher compliance prior to the amnesty, indicating limited positive selection with regressive implications. In summary, tax amnesties can effectively encourage delinquents to return to compliance.
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Notes
This advantage, however, is not without its disadvantage: having observable compliance prevents us from being able to study the effects of an amnesty on the concealing of one’s tax base (as is possible with, for example, the income tax).
For the rare cases in which a fraction of the bill was paid, we compute the share of the total bill that was paid. For example, if the full bill is paid in the corresponding month compliance is 1, if nothing is paid within the corresponding month compliance is 0, and partial compliance corresponds to fractions. Over 99% of payments are made for the full bill amount.
For payment plans consisting of 1 to 3 payments, the full amount of penalties was waived, for plans of 4 to 6 payments, 80% of the penalties were waived, while plans of 7 to 12 payments were granted a waiver for 50% of the penalties.
For example, compliance in March is defined as having paid the bill up until the last day of March. Thus, if this bill is paid, say, in September, this is not computed as compliance either in March or September.
To the best of our knowledge, the government did not actively encourage amnesty enrollees to use the pay-in-advance method, although it is possible that individuals became aware of it once they went to the municipality office to enroll in the amnesty.
For instance, the increase in taxes paid by those who disclose a foreign account relative to those who do not could be mixing not only getting former delinquents back on compliance, but also a reduction in compliance by non-participants (for example, if the amnesty leads them to believe that such a program is likely to happen in future again).
A total population of 226,517 People according to the 2010 Argentine Census.
The municipality sends bills to taxpayers bimonthly (e.g., bills sent in January have two pay stubs, one for January and one for February).
A 15% discount if the twelve months are paid, 10% if ten, and 5% if eight.
A map of municipalities included in the sample can be found in figure appendix figure A.1.
The name of the holder of the TIN and the individual who pays the tax associated to the TIN was not provided for confidentiality reasons.
For example, if the amount billed for the month is 100 and the person paid 50, then compliance is 0.5. In our data, most TINs either pay their bill completely or not at all, but there are some cases in which a fraction of the bill was paid, and our measure of compliance allows for partial compliance.
Part of the difference in levels is potentially due to the fact that a large share of observations from the control group come from more urbanized municipalities where there are some more stores available to pay the tax.
In the online appendix, we conduct robustness checks residualizing compliance from a linear pre-trend (figure A.5) and a quadratic pre-trend (figure A.6). We find qualitatively similar results except for the overall effect on compliance residualized from a linear pre-trend, which could be due to the fact that the overall effect is small. However, we still do find a dramatic increase in compliance for enrolled taxpayers.
Clustering at the municipality-level is infeasible given the fact that we only have one county that was treated, but we obtain very similar results when clustering at the locality-level.
While the fact that compliance increases for non-enrollees after the amnesty could be puzzling, some tax officials and journalists at the time suggested that sometimes an amnesty announcement can serve as a minor nudge even for those who do not take up the amnesty.
A histogram of the months of amnesty enrollment is provided in figure A.3, showing substantial variation in the timing of enrollment, with more density in September.
A concern that often arises during political discussions regarding tax amnesties is how pardoning delinquents can reduce tax morale among compliant taxpayers, particularly given how compliance seems to be polarized between “always-payers” and “never-payers” (e.g., see Cruces et al. (2022)). We do not find a significant reduction in compliance among taxpayers who had paid all of their pre-amnesty bills either on time or by the end of the year. See table A.1 and figure A.7.
A histogram of the payment plans chosen with the incentives highlighted can be found in figure A.4 in the online appendix: plans consisting of 1 to 3 monthly payments received a full discount on the penalties, plans of 4 to 6 monthly payments received a discount of 80% of the penalties, and plans of 7 to 12 monthly payments received a discount of 50% of the penalties. Thus, it seems that taxpayers chose mostly to pay as soon as possible, and otherwise bunched at the discontinuities in the incentive scheme.
Informal estimates place the fiscal valuation of the property at about 10 to 20 percent of the actual value of the property.
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Acknowledgments
We thank Victoria Giarrizzo for very useful input at the beginning of the project. We also thank Sree Kancherla, Woojin Kim, Juliana Londoño-Vélez, Michael Love, Ted Miguel, Jimmy Narang, Cristóbal Otero, Ricardo Pérez Truglia, Gautam Rao, Emmanuel Saez, Matthew Suandi, Darío Tortarolo, Damián Vergara, and seminar participants at UC Berkeley, Universidad de San Andrés, the World Bank, the National Tax Association, the Annual Congress of the International Institute of Public Finance, and the CESifo Public Economics conference for useful comments and suggestions. A previous version of this paper circulated under the title “Forgiveness Seems Divine: Tax Amnesties and Tax Compliance.”
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A previous version of this paper circulated under the title “Forgiveness Seems Divine: Tax Amnesties and Tax Compliance.” The analysis and conclusions set forth here are those of the authors and do not indicate concurrence by other members of the research staff, the Board of Governors, or the Federal Reserve System. Any mistake or omission is our responsibility.
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Lauletta, M., Montano Campos, F. Is the forgiveness of a tax amnesty divine? Evidence from Argentina. Int Tax Public Finance (2023). https://doi.org/10.1007/s10797-023-09799-5
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DOI: https://doi.org/10.1007/s10797-023-09799-5