ON THE NEED FOR FORWARD-LOOKING POLICYMAKING: AN ECUADORIAN CASE

While allowing the refiling of taxes in the case of legitimate mistakes is reasonable, there is empirical evidence showing that the unlimited ability to refile may incentivize evasion. However, theoretical models examining limiting unlimited refilings are nonexistent. Therefore, this paper develops a model to study the role of allowing an unlimited number of tax refilings on the behavior of taxpayers that received tax notifications because they under-reported taxes, as it was seen in the case of Ecuador between 2010 and 2012. Among other things, the key finding of the examination is that, if taxpayers are allowed to refile as many times as they want, the best decision for selfish taxpayers is to evade taxes. Contributing to the tax compliance literature but from a broader perspective as well, this paper demonstrates the importance of considering behavior through careful theoretical analysis before implementing new tax policies.