{
  "title": "Digitalization and Tax Compliance Spillovers: Evidence from a VAT e-Invoicing Reform in Peru",
  "publication": "IMF Working Papers, March 18, 2022",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2022/03/18/digitalization-and-tax-compliance-spillovers-evidence-from-a-vat-e-invoicing-reform-in-peru-515162",
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  "summary": "Our study uses administrative data on firm-to-firm transactions and quasi- experimental variation in the rollout of electronic invoicing reforms in Peru to study the diffusion of e-invoicing through firm networks and its effect on tax compliance.",
  "sections": [
    {
      "heading": "Summary",
      "content": "- Study uses administrative data on firm-to-firm transactions and quasi-experimental variation in the rollout of electronic invoicing reforms in Peru to analyze diffusion of e-invoicing through firm networks and effects on tax compliance.\n- Voluntary e-invoicing adoption is higher among firms with partners mandated to adopt e-invoicing, indicating positive technology adoption spillovers.\n- Spillovers are stronger from downstream partners and from export-oriented firms.\n- Firms are less likely to continue transacting with a partner who has been mandated into e-invoicing; the effect is only partially reversed if both firms adopt e-invoicing, suggesting possible network segmentation.\n- Smaller firms who transact with partners mandated into e-invoicing report 11 percent more sales and pay 17 more VAT in the year that their partner is mandated to adopt e-invoicing, indicating positive spillovers in tax compliance behavior for this subset."
    },
    {
      "heading": "Key findings and evidence",
      "content": "- Voluntary adoption:\n  - Firms with mandated partners show higher voluntary e-invoicing adoption (positive technology adoption spillovers).\n- Directional and firm-type heterogeneity:\n  - Spillovers are stronger from downstream partners.\n  - Spillovers are stronger from export-oriented firms.\n- Network effects on transactions:\n  - Mandating a partner into e-invoicing reduces the likelihood that a firm continues transacting with that partner.\n  - If both firms adopt e-invoicing, the reduction in continuing transactions is only partially reversed, consistent with network segmentation dynamics.\n- Tax compliance outcomes for smaller firms:\n  - Smaller firms transacting with mandated partners report 11 percent more sales in the mandate year.\n  - These smaller firms pay 17 more VAT in the mandate year."
    },
    {
      "heading": "Mechanisms and interpretation",
      "content": "- Technology adoption spillovers: observed increases in voluntary e-invoicing uptake among firms connected to mandated partners imply diffusion through commercial networks.\n- Compliance spillovers: increased reported sales and VAT payments among smaller firms linked to mandated partners are consistent with positive spillovers in tax reporting/compliance behavior.\n- Network segmentation risk: reduced continuation of transactions with mandated partners, and only partial reversal when both adopt, imply that digital mandates can reshape transaction networks and potentially segment markets."
    },
    {
      "heading": "Policy implications",
      "content": "- Digitalization as a compliance tool:\n  - E-invoicing mandates can generate positive adoption and tax-compliance spillovers beyond directly targeted firms.\n- Attention to network effects:\n  - Policymakers should monitor potential network segmentation resulting from mandates, as some trading relationships may be discontinued.\n- Targeting and complementarities:\n  - Stronger spillovers from downstream and export-oriented firms suggest considering the position and characteristics of firms when designing phased rollouts.\n- Support for smaller firms:\n  - Given observed compliance gains among smaller firms connected to mandated partners, policies could combine mandates with assistance to small firms to capture benefits while mitigating adjustment costs.\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2022/03/18/digitalization-and-tax-compliance-spillovers-evidence-from-a-vat-e-invoicing-reform-in-peru-515162"
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    "Authors: Matthieu Bellon, Era Dabla-Norris, Salma Khalid, Juan Carlos Paliza, Jillie Chang, Pilar Villena",
    "Published: March 18, 2022",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9798400204876.001",
    "Study uses administrative data on firm-to-firm transactions and quasi-experimental variation in the rollout of electronic invoicing reforms in Peru to analyze diffusion of e-invoicing through firm networks and effects on tax compliance.",
    "Voluntary e-invoicing adoption is higher among firms with partners mandated to adopt e-invoicing, indicating positive technology adoption spillovers.",
    "Spillovers are stronger from downstream partners and from export-oriented firms.",
    "Firms are less likely to continue transacting with a partner who has been mandated into e-invoicing; the effect is only partially reversed if both firms adopt e-invoicing, suggesting possible network segmentation.",
    "Smaller firms who transact with partners mandated into e-invoicing report 11 percent more sales and pay 17 more VAT in the year that their partner is mandated to adopt e-invoicing, indicating positive spillovers in tax compliance behavior for this subset.",
    "Voluntary adoption:",
    "Directional and firm-type heterogeneity:",
    "Network effects on transactions:",
    "Tax compliance outcomes for smaller firms:",
    "Technology adoption spillovers: observed increases in voluntary e-invoicing uptake among firms connected to mandated partners imply diffusion through commercial networks.",
    "Compliance spillovers: increased reported sales and VAT payments among smaller firms linked to mandated partners are consistent with positive spillovers in tax reporting/compliance behavior.",
    "Network segmentation risk: reduced continuation of transactions with mandated partners, and only partial reversal when both adopt, imply that digital mandates can reshape transaction networks and potentially segment markets.",
    "Digitalization as a compliance tool:",
    "Attention to network effects:",
    "Targeting and complementarities:",
    "Support for smaller firms:",
    "**Working Paper**"
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