Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/147369
Authors: 
Harju, Jarkko
Matikka, Tuomas
Rauhanen, Timo
Year of Publication: 
2016
Series/Report no.: 
CESifo Working Paper 6115
Abstract: 
There is only limited evidence of how small firms respond to size-based regulations applied in various countries. We study this question by examining the value-added tax (VAT) threshold in Finland. We find sizable bunching of firms in the sales distribution just below the exemption threshold, implying that firms actively avoid VAT liability. We utilize variation in both the VAT rate and reporting requirements to provide compelling evidence that the response is caused by the compliance costs of VAT reporting rather than the level of the tax rate. In addition, we find that compliance costs hinder the growth of small firms.
Subjects: 
firm behavior
compliance costs
value-added tax
JEL: 
D22
H25
H32
L11
Document Type: 
Working Paper

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