Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/339083 
Year of Publication: 
2025
Series/Report no.: 
WIDER Working Paper No. 75/25
Publisher: 
The United Nations University World Institute for Development Economics Research (UNU-WIDER), Helsinki
Abstract: 
How does political alignment with the ruling party influence the audit outcomes of the firms? This paper investigates whether political alignment with the ruling party influences the intensity and outcomes of firm audits in South Africa. Using a regression discontinuity design based on close provincial election results from 2014, we examine how firms are treated in municipalities narrowly won versus narrowly lost by the African National Congress (ANC). We combine detailed audit data with corporate income tax (CIT) returns to assess whether audit frequency, enforcement outcomes, and firm-reported liabilities differ along political lines. Our findings show a marked reduction in audit amounts, number of audit cases, and compliant taxpayers in ANC-aligned municipalities. These effects extend to tax reporting behavior: firms in aligned areas report significantly lower corporate tax liabilities despite exhibiting higher reported sales. This pattern suggests that political alignment dampens enforcement without corresponding decreases in firm performance. The study provides suggestive evidence of regulatory forbearance shaped by political incentives, raising broader concerns about fairness, institutional credibility, and the erosion of tax morale in politically connected jurisdictions.
Subjects: 
close elections
firm audits
South Africa
JEL: 
H26
H30
M42
D72
Persistent Identifier of the first edition: 
ISBN: 
978-92-9267-634-6
Document Type: 
Working Paper

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