Adoption of fiscal devices and tax compliance. New evidence from Kazakhstan

We examine the tax revenue effects of a policy mandating certain businesses to adopt electronic fiscal devices in Kazakhstan. The case of Kazakhstan provides a unique setting for the study, as the government enacted the policy requiring firms in the selected industries and locations to adopt fiscal devices in business transactions. The effect of this policy on firms' tax compliance has not been explored up to now. This paper investigates the impact of this regulatory measure on small businesses. Using firm -level data for 2015 and 2016, we find that the policy generated an improvement in firms' compliance behavior. The regulatory intervention increased the tax revenues collected from the firms affected by the policy by approximately 20%. Understanding potential mechanisms to improve tax compliance, particularly in low state capacity contexts, is of both academic and policy interest. Increasing tax compliance can strengthen the ability of the government to provide public goods and it may also reduce inequality, depending on the distribution of evasion.