Casting a Wider Tax Net: Experimental Evidence from Costa Rica

The majority of firms in developing countries are informal, and encouraging them to register for taxation is challenging. We argue that non-filing of taxes among registered firms constitutes an important intermediate form of informality, which can be tackled cost-effectively. Using a randomized experiment in Costa Rica, we show that credible enforcement emails increased the tax payment rate (amount) by 3.4 p.p. (US$ 15) among previously nonfiling firms. Highlighting third-party reports of a firm’s transactions further increased compliance. The effect persisted in the medium term, and treated firms became more likely to report transactions with other firms, facilitating future tax enforcement.