Measuring True Sales and Underreporting with Matched Firm-Level Survey and Tax-Office Data

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Abstract

This paper uses firm-level survey data matched with official tax records to estimate the unobserved true sales of formal firms in Mongolia. Taking into account firm-level incentives to comply with taxes and a production function technology linking unobserved true sales with observable firm-level production characteristics, we derive a multipleindicators, multiple-causes model predicting true sales. We find that firms underreport sales to the tax office by 38.6%, but firm-level survey data also suffer from significant underreporting. Finally, we compare our approach with two alternative approaches of measuring underreporting and discuss the practical implications of the findings for firm-level analyses of underreporting.
Original languageEnglish
Pages (from-to)563-576
JournalReview of Economics and Statistics
Volume96
Issue number3
DOIs
Publication statusPublished - 2014

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