This paper examines how Large Taxpayer Units (LTUs), a commonly-used tool for enforcing tax compliance, affect large firms’ reported profitability and effective tax rate. Increased scrutiny may either improve reporting and compliance efforts, or lead to adverse reactions from large taxpayers such as profit shifting to reduce tax liabilities. We explore the actions of Jamaica's LTU around its $500m large-taxpayer eligibility cut-off using a before-during regression discontinuity approach.

We find the LTU increases the pre-tax profit margin of studied large firms by 2–3 percentage points. Increased effective tax rates are also observed, although less robustly.This suggests that the creation of LTUs,comprising of highly specialized and skilled staff,to monitor large firms, has significantly improved tax compliance levels among Jamaican large firms.