Centre for Development Economics
Department of Economics
Delhi School of Economics
ANNOUNCE A SEMINAR
Limits to VAT Self-Enforcement: Role of Network Frictions in Compliance
by
Bhanu Gupta
(Ashoka University)
Joint with
(Tejaswi Velayudhan, Prince Dhawan and Ankur Garg)
(Thursday, September 18, 2025, at 3:10 PM, IST )
Venue: Amex Room
Abstract:-
Value-Added Tax (VAT) is a popular revenue-raising tool because it incentivizes taxpayers to self-enforce compliance within a supply chain. Combining administrative tax data and a randomized experiment nudging Indian Goods and Services Tax (GST) taxpayers to pay on time, we show that the same incentives can constrain tax-authority-led enforcement when it is costly to change supplier behavior. While nudges increase compliance by 8 percent on average, only taxpayers with above-median compliance in their supplier network respond. Taxpayers increase on-time filing by lowering net tax payments and are unlikely to change delinquent suppliers. Our findings highlight how the effectiveness and distributional burden of VAT enforcement depends on production networks.