Ghosting the Tax Authority: Fake Firms and Tax Fraud in Ecuador
American Economic Review: Insights
vol. 5,
no. 4, December 2023
(pp. 427-44)
Abstract
An important but poorly understood form of firm tax evasion arises from "ghost firms"—fake firms that issue fraudulent receipts so that their clients can claim false deductions. We provide a unique window into this global phenomenon using transaction-level tax data from Ecuador. Five percent of firms use ghost invoices annually. Among these firms, ghost transactions comprise 14 percent of purchases. Ghost transactions are prevalent among large firms and firms with high-income owners and exhibit suspicious patterns, such as bunching below financial system thresholds. An innovative enforcement intervention targeting ghost clients rather than ghosts themselves led to substantial tax recovery.Citation
Carrillo, Paul, Dave Donaldson, Dina Pomeranz, and Monica Singhal. 2023. "Ghosting the Tax Authority: Fake Firms and Tax Fraud in Ecuador." American Economic Review: Insights, 5 (4): 427-44. DOI: 10.1257/aeri.20220321Additional Materials
JEL Classification
- D22 Firm Behavior: Empirical Analysis
- H25 Business Taxes and Subsidies including sales and value-added (VAT)
- H26 Tax Evasion and Avoidance
- K34 Tax Law
- L25 Firm Performance: Size, Diversification, and Scope
- O14 Industrialization; Manufacturing and Service Industries; Choice of Technology