Ep. 05 - Fiscal monitoring and corporate tax compliance in Brazil

The study analyzes the impact of fiscal monitoring on the tax behavior of the large firms listed on B3 and explores a natural experiment caused by the intervention of the RFB through the Economic-Tax Monitoring of the largest contributors. A Discontinuous Regression (RD) design with multiple cutoffs is used to identify the effect and understand the companies’ response mechanisms. The results indicate a heterogeneous local average effect due to the different intensity of enforcement exercised on each niche of companies. However, only the largest companies, categorized with total assets above the median, increase reported gross revenue and taxes paid. The more aggressive companies also start to report higher values of gross revenue, but manage to avoid paying more taxes. There is suggestive evidence that some types of companies are able to readjust, probably via a change in planning and increased liquidity, so as not to compromise their results. The findings suggest that auditing by a tax authority can promote gains both for companies and in terms of tax revenue.