nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2012‒06‒13
nine papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Tax Morale and Tax Evasion: Social Preferences and Bounded Rationality By Zsombor Z. M‚der; Andr s Simonovits; J nos Vincze
  2. A Field Experiment on Moral Suasion and Tax Compliance Focusing on Under-Declaration and Over-Deduction By Benno Torgler
  3. Fiscal Revenues and Commitment in Immigration Amnesties By Francesco Magris; Giuseppe Russo
  4. Imperfect Detection of Tax Evasion in a Corrupt Tax Administration By Escobari, Diego
  5. Transparency, Tax Pressure and Access to Finance By Andrew Ellul; Tullio Jappelli; Marco Pagano; Fausto Panunzi
  6. Tributación en Colombia y los orígenes de su brecha impositiva, 1821-1920. By Isidro Hernández Rodríguez.
  7. Influence of institutional factors and wage-setting mechanism in a dual labour market with currency union: Northern Cyprus By Kayam, Saime S.
  8. Cigarettes taxes and smuggling in South Africa: Causes and Consequences By Craig Lemboe; Philip Black
  9. Sale Of Visas: A Smuggler's Final Song? By Emmanuelle Auriol; Alice Mesnard

  1. By: Zsombor Z. M‚der (Maastricht University Department of Economics); Andr s Simonovits (Institute of Economics Research Centre for Economic and Regional Studies Hungarian Academy of Sciences and Budapest University of Technology and Economics Institute of Mathematics and Central European University, Department of Economics); J nos Vincze (Institute of Economics Research Centre for Economic and Regional Studies Hungarian Academy of Sciences and Corvinus University of Budapest)
    Abstract: We study a family of models of tax evasion, where a flat-rate tax finances only the provision of public goods, neglecting audits and wage differences. We focus on the comparison of two modeling approaches. The first is based on optimizing agents, who are endowed with social preferences, their utility being the sum of private consumption and moral utility. The second approach involves agents acting according to simple heuristics. We find that while we encounter the traditionally shaped Laffer-curve in the optimizing model, the heuristics models exhibit (linearly) increasing Laffer-curves. This difference is related to a peculiar type of behavior emerging within the heuristics based approach: a number of agents lurk in a moral state of limbo, alternating between altruism and selfishness.
    Keywords: tax evasion, tax morale, agent-based simulation
    JEL: H26
    Date: 2012–01
  2. By: Benno Torgler
    Abstract: Field experiments in the area of tax compliance are rare. This field experiment generates a unique data set with respect to individuals’ under-declaration of income and wealth and over-deductions of tax credits by obtaining exclusive full access to the audits. Using this commune level data from Switzerland, the paper explores the influence of moral suasion on tax compliance. Moral suasion was introduced through a treatment in which taxpayers received a letter signed by the commune’s fiscal commissioner containing normative appeals. Interestingly, I observe differences between under-declaration and over-deductions. Moreover, the overall finding is in line with former results that moral suasion has hardly any effect on taxpayers’ compliance.
    Keywords: tax compliance; moral suasion; field experiment
    JEL: H26 H71
    Date: 2012–06
  3. By: Francesco Magris (Université François Rabelais); Giuseppe Russo (Università di Salerno and CSEF)
    Abstract: Reasons to grant immigration amnesties include the intention to reduce the weight of the informal sector and the attempt to identify employers of undocumented workers. However, it is incontestable that potential fiscal gains are important: tax revenues are crucial in all kinds of amnesties. Nevertheless, over the last 30 years 24% of applications have been rejected. It is still unexplained why governments accept this loss of fiscal base. We argue that applying for amnesty is basically selfincrimination, and that immigration-averse governments have an incentive to exploit the applications to identify and expel illegal workers. In our Nash equilibrium only applicants with the highest income are granted amnesty, and the poorest immigrants do not apply. In addition, it is not possible to establish a reputation because the players are different every time the game is repeated. Thus, fiscal revenues are sub-optimal and amnesties are an inefficient way to make illegal workers come forward.
    Keywords: Amnesty, illegal immigration, time consistency, incentive compatibility
    JEL: J61 J68 H59
    Date: 2012–05–28
  4. By: Escobari, Diego
    Abstract: This article models the imperfect detection of tax evasion motivated by the existence of a corrupt tax administration. Consistent with previous literature, fines and audit probabilities both have a positive effect on compliance. Moreover, the model shows that they have a negative effect on the bribes paid to corrupt tax officials. More corruption decreases compliance levels, giving honest auditors incentives to work harder to detect evasion. Giving inspectors a share of the detected evasion (tax farming) makes auditors work harder; however, increasing their wages reduces their exerted effort to discover evasion. Higher compliance can as well be achieved by hiring more efficient inspectors.
    Keywords: Taxation; Evasion; Corruption
    JEL: D73 J31 H83 H26
    Date: 2011–07–27
  5. By: Andrew Ellul; Tullio Jappelli; Marco Pagano; Fausto Panunzi
    Abstract: In choosing transparency, firms must trade off the benefits from better access to finance against the cost of a greater tax burden. We study this trade-off in a model with distortionary taxes and endogenous rationing of external finance. The evidence from two different data sets, one formed only by listed firms and another mainly by unlisted firms, bears out the model’s predictions: First, investment and access to finance are positively correlated with accounting transparency, especially in firms that depend more on external finance, and are negatively correlated with tax pressure. Second, transparency is negatively correlated with tax pressure, particularly in sectors where firms are less dependent on external finance, and is positively correlated with tax enforcement. Finally, financial development enhances the positive effect of transparency on investment, and encourages transparency by financially dependent firms.
    Date: 2012–06
  6. By: Isidro Hernández Rodríguez.
    Date: 2011–12–04
  7. By: Kayam, Saime S.
    Abstract: In this paper, I consider two heterogeneous economies that engage in a currency union. The small economy adopts the currency of the large and is highly dependent on its wealthier partner for trade. The effects of a currency union, deficit financing and institutional restraints on inflation are analyzed in a dual economy with different wage-setting mechanisms. In the model, Northern Cyprus is the small economy and Turkey, being the only country that acknowledges it as an independent state is its larger partner. Features of the labour markets determine the wages. We make a conjecture that wage determination in Northern Cyprus (NC) is conducted with reference to centralized-bargaining and that decentralized bargaining sets the wages in Turkey (TR). Hence, the differences in wage-setting procedures cause a dual labour market. In order to incorporate monetary dependence into the analysis, we let the Turkish central bank to decide on the economic policy measures, in this case the inflation rate and unemployment. The institutional restraints such as economic sanctions increase the inflexibility in the NC and cause shocks to affect the economy more. In order to compensate for the losses that might be endured by the government in NC, TR finances the budget deficit of NC. Therefore, TR government needs to consider the burden of this financing issue.
    Keywords: currency union; monetary policy; labour market institutions; politics
    JEL: E62 F15 F16 L11
    Date: 2011
  8. By: Craig Lemboe (Bureau for Economic Research, University of Stellenbosch); Philip Black (Department of Economics, University of Stellenbosch)
    Abstract: The main instrument within the broader framework of tobacco control in South Africa has been the more aggressive use of tobacco taxes which since 1999/2000 have increased from 0.12 cents per cigarette to 0.38c in 2009/10. The primary goal of these policies is to reduce cigarette consumption and the attendant negative externality. National Treasury (NT) data seem to suggest that these initiatives and higher taxes in particular have been effective in reducing cigarette consumption. However, the official (NT) data pay little attention to the illegal cigarette market which in South Africa has long been assumed to be only a fraction of total cigarette consumption. Comparing an independent consumption survey with the NT data we find that the level of cigarette smuggling in South Africa is in fact significant, constituting between 40% and 50% of the total market, and that cigarette tax hikes have to a large extent contributed to its continued existence and growth by creating a financial incentive to smuggle. Furthermore, the well-established informal sector in South Africa - which developed under Apartheid rule and is characterised by strong networks with other African countries - implies that there is a greater ability and likelihood of consumers switching from consuming legal cigarettes to consuming illegal cigarettes following a tax-induced price increase. There is also much evidence indicating that illegal cigarettes are of inferior quality which, combined with the tax induced shift to smuggled cigarettes, suggests that cigarette tax hikes could have the perverse effect of raising rather than lowering the overall negative externality.
    Keywords: externalities, cigarette smuggling, illegal market, tobacco control
    JEL: H23 I18
    Date: 2012
  9. By: Emmanuelle Auriol (Toulouse School of Economics (ARQADE and IDEI) and CEPR); Alice Mesnard (City University, Institute for Fiscal Studies and CEPR)
    Abstract: Is there a way of eliminating human smuggling? We set up a model to simultaneously determine the provision of human smuggling services and the demand from would-be migrants. A visa-selling policy may be successful at eliminating human smugglers by eroding their profits but it necessarily increases immigration. In contrast, re-enforced repression decreases migration but uses the help of cartelized smugglers. To overcome this trade-off we study how legalisation and repression can be combined to eliminate human smuggling while controlling migration flows. This policy mix also has the advantage that the funds raised by visa sales can be used to finance additional investments in border and internal controls (employer sanctions and deportations). Simulations of the policy implications highlight the complementarities between repression and legalisation and call into question the current policies.
    Keywords: migration, migration policies, market structure, legalisation, human smuggling.
    JEL: F22 I18 L51 O15
    Date: 2012–05

This nep-iue issue is ©2012 by Catalina Granda Carvajal. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.