New Working Paper: Tax Enforcement Spillovers – Evidence from South Africa

New paper by Nadine Riedel, together with Collen Lediga (Ruhr University of Bochum) and Kristina Strohmaier (University of Tübingen).


The purpose of this paper is to test for tax enforcement spillovers within economic and spatial networks. Using the population of corporate tax returns for the years 2009 to 2015, we can show that tax audits exert a positive and significant effect on the tax liability of non-targeted neighboring firms. Quantitatively, the results suggest that the audit of a close geographic neighbor increases corporate tax reporting by 0.7 percent. While the observed spillover effect decline in distance to the audited entity and are short run in nature, the implied aggregate revenue gains are non-negligible. Additional analyses show that the effect is driven by audit cases, where audited firms do not experience an upward revision in their tax owed in the course of the audit. This suggests that the observed effect is rooted in communication among taxpayers and is not driven by audit-related cost shocks of competitors or business partners.