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Dienstag, 02.07.2024 | 11:15 Uhr | Walter Eucken Institut Bargaining Over Taxes: Evidence From Zambian Firms

Daniel Overbeck

Universität Mannheim

Walter Eucken Institut, Goethestraße 10, 79100 Freiburg

Referent: Daniel Overbeck (Universität Mannheim)

Abstract: This paper shows that bargaining over tax payments is a prevalent mode of tax compliance and enforcement in lower income countries. Using administrative data on the universe of turnover tax filings from Zambia, we document strong and sharp bunching (i) in strictly dominated regions where firms would be better off by reducing turnover and (ii) at amounts which imply round number tax liabilities. These observations reject predictions from standard models of tax compliance, but can be rationalized when interpreting tax payments as outcomes of bargaining between taxpayers and tax collectors. We conduct a survey of more than 500 firms in Zambia and document that discussing tax payments with officials before filing tax returns is a widespread phenomenon, lending support to the bargaining channel. Tax audit data as well as a randomized survey experiment provide evidence against competing explanations such as poor record-keeping or audit experiences for the observed bunching behavior. Finally, we propose a theoretical framework to explain how and when bargaining over taxes may occur.