Identifying Tax Compliance from Variation in Tax Policy: Theory and Empirics

Governments increasingly use changes in tax rules to combat evasion. We develop a general approach to point-identify tax compliance along with supply and demand elasticities. Identification requires data on prices and quantities, variation in tax policy, and a demand or supply shifter. We illustrate our approach using data on Airbnb collection agreements, where taxes are enforced by shifting the statutory burden away from hosts and onto renters via the platform. We find that taxes are paid on roughly 0 to 1.6 percent of Airbnb transactions prior to enforcement. (JEL H25, H26, H71, K34, L83)