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This paper studies tax withholding on business sales, a widely used compliance mechanism which is largely ignored by public finance theory. The study introduces a withholding scheme, whereby the payer in a transaction collects tax from the payee, in a standard evasion model. If the taxpayer can fully reclaim the tax withheld, withholding is irrelevant to her evasion decision. If reclaim is costly, however, withholding establishes a compliance default. To show this empirically, the analysis exploits a ten-year panel of registration, income tax and sales tax records from 400,000 firms in Costa Rica, and over 20 million third-party information and withholding reports. The paper first documents the anatomy of compliance, providing novel measures of compliance gaps on the extensive, intensive and payment margins. It then shows that interventions leveraging the existing third-party information reduce these compliance gaps only marginally. Coverage by a withholding scheme, in contrast, is correlated with higher reported taxable income both across firms and within firms across time. Quasi-experimental estimations show that a doubling of the withholding rate leads to a 40 percent increase in tax payment among treated firms and a 10 percent increase in aggregate revenue. The mechanisms are incomplete reclaim of the tax withheld and reduced misreporting.

Added Tax. --- Assessment. --- Auction. --- Audit. --- Border Taxes. --- Business Tax. --- Capital Tax. --- Cash Transactions. --- Check. --- Communications. --- Compliance Gap. --- Corporate Income Tax. --- Corporate Tax. --- Corporate Taxation. --- Corporation Tax. --- Credit Card. --- Creditors. --- Customers. --- Debt Markets. --- Debtors. --- Default. --- Derivative. --- Developing Countries. --- Developing Economies. --- Dividend Tax. --- Dividend. --- Dummy Variable. --- Emerging Markets. --- Enforcement Mechanism. --- Enforcement. --- Eveloping Country. --- Exchange. --- Exports. --- Federal Reserve System. --- Federal Reserve. --- Finance and Financial Sector Development. --- Finance. --- Future. --- Goods. --- Governance. --- Government Revenue. --- Holding. --- Income Levels. --- Income Tax. --- Income Volatility. --- Income. --- Input Tax. --- Instrument. --- Interest. --- Internal Revenue. --- International Bank. --- Investment. --- Labor Market. --- Late Payments. --- Law and Development. --- Levies. --- Liability. --- Liquidity. --- Macroeconomics and Economic Growth. --- Marginal Tax Rates. --- Market. --- Middle-Income Country. --- Optimal Taxation. --- Output. --- Payment Methods. --- Payment Obligation. --- Personal Income Tax. --- Personal Income. --- Political Economy. --- Power Parity. --- Private Sector Development. --- Property Tax. --- Property. --- Public Finance. --- Remittance. --- Rent. --- Reserve. --- Retirement Savings. --- Return. --- Revenue. --- Risk Aversion. --- Sale of Goods. --- Sales Tax. --- Saving. --- Savings Accounts. --- Share. --- Tax Administration. --- Tax Audit. --- Tax Base. --- Tax Brackets. --- Tax Collection. --- Tax Compliance. --- Tax Credits. --- Tax Enforcement. --- Tax Evasion. --- Tax Incentive. --- Tax Law. --- Tax Liability. --- Tax Payers. --- Tax Rate. --- Tax Reform. --- Tax Reports. --- Tax Return. --- Tax Revenue. --- Tax Sales. --- Tax Structures. --- Tax System. --- Tax. --- Taxable Activities. --- Taxable Income. --- Taxation and Subsidies. --- Taxation. --- Taxpayer Compliance. --- Taxpayer. --- Trade. --- Transaction Cost. --- Transaction. --- Transport Economics Policy and Planning. --- Transport. --- Value Added Tax. --- Volatility. --- Wealth Tax. --- World Development Indicators.