Authors: Gastón Pierri, Michael Best, and Evan Sadler.
Paraguay is an upper-middle income country in South America. Informality and tax evasion are central barriers to the development of the economy: 65% of workers are informally employed, and tax revenues are a paltry 10% of GDP (World Bank, 2017). Moreover, the tax administration has extremely scarce resources with which to enforce the collection of taxes.
For our project, the Paraguayan context has two key advantages. First, it is one of only a relatively small number of countries in which the tax administration receives detailed, transaction-level data on business to business transactions. Such data are key for our project that requires us to map out the network of production connections between firms and how they change in response to our experimental treatments.
In preparation for the project, SET shared a sample of their network data for a single firm. Figure 1 below shows the firms connected to the sample firm in three groups: its suppliers, its clients, and firms that are both. The size of each node is proportional to the log of the amount of trade between the firm and the target firm. Interestingly, we already see that network position is important: The firms that are both suppliers and clients are much more evenly sized than the suppliers, and the sample firms’ clients vary dramatically in size.
Second, at present, Electronic Billing Machines (EBMs) are not deployed in Paraguay. However, with the support of the InterAmerican Development Bank (IDB), the tax administration is rolling EBMs out over the course of 2020 and 2021. Our project is incorporated into the timeline of the rollout, permit- ting us to leverage the rollout the government is already doing to both evaluate the impact of the EBMs and study the impact of our targeting rules.