GOVERNMENT PARDONS AND TAX COMPLIANCE: THE IMPORTANCE OF WEALTH AND ACCESS TO PUBLIC GOODS

Abstract

We estimate the differential effect of a tax amnesty on tax compliance across two dimensions of heterogeneity: wealth and access to public goods. Using a five-year panel from tax payers in Argentina, we use a difference-in-differences approach and show that the amnesty induced a significant differential decrease in tax compliance for wealthier tax payers and those with low access to public goods. We further show that the amnesty differentially increased the probability of having at least one unpaid month for wealthier taxpayers and those with low access to public goods. Our findings provide a possible explanation for the ambiguity in previous estimates of the effects of the tax amnesties by indicating the importance of population heterogeneity on responses to tax amnesties. Moreover, our findings bear an important policy implication: heterogeneous responses should be taken into account when performing the cost-benefit analysis of undertaking a tax amnesty, since tax compliance is sensitive to the composition of the population regarding wealth and access to public goods.

Keywords

• tax amnesty
• tax compliance
• effects of tax amnesties