Responses of Firms to Tax, Administrative and Accounting Rules: Evidence from Armenia

45 Pages Posted: 12 Oct 2016

See all articles by Zareh Asatryan

Zareh Asatryan

ZEW – Leibniz Centre for European Economic Research

Andreas Peichl

ZEW – Leibniz Centre for European Economic Research; University of Mannheim - School of Economics (VWL); IZA Institute of Labor Economics; University of Essex - Institute for Social and Economic Research (ISER)

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Date Written: October 5, 2016

Abstract

Using panel data on the full population of corporate tax returns of Armenian firms, we study the behavioral response of firms to three size-dependent regulations. We find: i) a strong response to an accounting notch where International Financial Reporting Standards become mandatory; ii) a moderate response to an administrative notch below which the frequency of filing and paying taxes declines from monthly to quarterly; and iii) no response to a tax notch created by the registration threshold of the value added tax. Exploiting tax audits, we provide evidence suggesting that income under-reporting drives the bunching response of firms by between 60 and 100 percent. Additional evidence suggests that firms respond to tax audits by compensating every additional dollar of audit driven increase in reported income by a 0.7-0.8 dollar increase in reported deductions.

Keywords: Small and medium enterprises, size-dependent regulation, value added tax, tax administration, tax accounting, tax evasion

JEL Classification: H25, H26, O12

Suggested Citation

Asatryan, Zareh and Peichl, Andreas, Responses of Firms to Tax, Administrative and Accounting Rules: Evidence from Armenia (October 5, 2016). ZEW - Centre for European Economic Research Discussion Paper No. 16-065, Available at SSRN: https://ssrn.com/abstract=2850534 or http://dx.doi.org/10.2139/ssrn.2850534

Zareh Asatryan (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Andreas Peichl

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

University of Mannheim - School of Economics (VWL) ( email )

Mannheim 68131
Germany

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

University of Essex - Institute for Social and Economic Research (ISER)

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

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