Ghosting the Tax Authority: Fake Firms and Tax Fraud
Abstract
Paul Carrillo
PhD University of Virginia
Abstract: An important but poorly understood form of firm tax evasion arises from “ghost firms”—fake firms that issue fraudulent receipts so that their clients can claim false deductions. We provide a unique window into this global phenomenon using transactionlevel tax data from Ecuador. 5% of firms use ghost invoices annually and, among these firms, ghost transactions comprise 14% of purchases. Ghost transactions are particularly prevalent among large firms and firms with high-income owners, and exhibit suspicious patterns, such as bunching below financial system thresholds. An innovative enforcement intervention targeting ghost clients rather than ghosts themselves led to substantial tax recovery.