Semuhi Sinanoglu (2025). “The cost of co-optation: tax audit as authoritarian financial repression.” Working paper.
Tax audits as a low-intensity tool of financial repression against co-opted business allies; firm-level evidence from 32,000 firms in 40 electoral autocracies.
How do autocrats manage debt crises? While extorting businesses may offer a quick windfall, such coercion may prove costly for autocrats. I argue that during fiscal downturns, autocrats financially target their business allies to reduce the spoils offered to cronies. To mitigate risk exposure, they deploy tax audits as a technical tool of repression. I qualitatively illustrate this with cases from different autocracies and test it using firm-level data from over 32,000 companies in 40 electoral autocracies. Using various estimators, sensitivity analyses, and placebo tests, I show that co-opted firms with public contracts or import permits are more likely to be inspected by the tax authorities, and more frequently during debt crises. The effects are pronounced for regimes without strong propaganda capabilities, suggesting a substitution effect between propaganda and repression. The results have implications for understanding the cost of co-optation under autocracies and regime durability during economic crises.