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on Informal and Underground Economics |
| By: | James Alm (Department of Economics, Tulane University); Abel Embaye (Department of Economics, University of Arkansas) |
| Abstract: | The paper estimates the size of shadow economy for 111 countries for the years 1984 to 2006 based on the currency demand approach. An important innovation is our use of dynamic panel data methods, which allows us to make several important contributions. First, we estimate the shadow economy for a range of heterogeneous countries that previously could not be included in the same regression. Second, we include variables that measure institutional quality in countries, including a variable that measures enforcement efforts. Third, we account for the persistence of currency demand as it evolves over time. Our results indicate a substantial shadow economy across countries, ranging from 10 to 86 percent of GDP, with some tendency to grow over time. We also find that the shadow economy varies significantly by country income group. The mean shadow economy is 17 percent of GDP for OECD countries, 24 percent for non-OECD high income countries, 33 percent for upper middle income countries, 37 percent for lower middle income countries, and 38 percent for low income countries. |
| Keywords: | tax evasion, shadow economy, currency demand method, panel data |
| JEL: | H21 H26 C33 E41 O17 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:1303&r=iue |
| By: | James Alm (Department of Economics, Tulane University) |
| Abstract: | Taxpayers face well-known and well-identified individual motivations in their compliance decisions, motivations that originate with the standard economic model of tax evasion in which financial incentives are shaped by audit, penalty, and tax rates. However, there is growing evidence that these individual incentives, while important, are not always decisive. Individuals do not always behave as the selfish, rational, self-interested individuals portrayed in the standard neoclassical paradigm, but rather are often motivated by many other factors that have as their main foundation some aspects of social norms, morality, altruism, fairness, or the like, factors that I broadly and no doubt imprecisely lump together as group motivations. I argue that the compliance puzzle can be explained, at least in part, by expanding the standard analysis of individual compliance behavior to incorporate the important ways in which individual decisions are shaped by group motivations. I also provide empirical and experimental evidence to support these arguments, and, I suggest – and predict – some promising lines of future research. |
| Keywords: | tax evasion, behavioral economics, experimental economics |
| JEL: | H2 H26 D03 C9 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:1309&r=iue |
| By: | Roberta Calvet (Department of Business Management and Communication, Lesley University); James Alm (Department of Economics, Tulane University) |
| Abstract: | This paper examines the effect of "empathy" and "sympathy" on tax compliance. We run a series of laboratory experiments in which we observe the subjects' decisions in a series of one-shot tax compliance games presented at once and with no immediate feedback. Importantly, we employ methods to identify subjects' sympathy, such as the Davis Empathic Concern Scale and questions about frequency of prosocial behaviors; we also use priming in order to promote subjects' empathy. Our results suggest that the presence of sympathy in most cases encourages more tax compliance. Our results also suggest that priming to elicit empathy also has a positive impact on tax compliance. These results support the inclusion of noneconomic factors in the analysis of tax compliance behavior. |
| Keywords: | Tax evasion; Emotions; Morality; Identity; Behavioral economics; Experimental economics |
| JEL: | H26 C91 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:1310&r=iue |
| By: | Gkinni, Eleni; Vasilaki, Eleni |
| Abstract: | This paper seeks to examine the effect of employment protection on income inequality. By employing the employment protection data developed by Botero et al. (2004) as well as well established measures of economic inequality for a sample of 83 countries, our analysis suggests that increased employment protection is negatively associated with income inequality. This relationship remains highly robust across several different specifications and estimation methods. In addition, our analysis places the spotlight on the role of the informal economy and investigates how the presence of informal sector may affect the above mentioned relationship. Our results suggest that in the presence of a large unofficial economy the negative impact of employment protection on inequality is crucially mitigated and in some extreme cases may also be reversed. |
| Keywords: | Employment protection, Shadow Economy, Inequality |
| JEL: | D63 E26 J08 J3 |
| Date: | 2013–03–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:45464&r=iue |
| By: | John D. Conroy |
| Abstract: | his is the third in a series of papers concerned with the intellectual history of the 'informal economy' and its relevance to current concerns in Papua New Guinea (PNG; the eastern half of the island of New Guinea). Proceeding from the observation that monetized informal economic activity in PNG has been of relatively limited importance, the paper seeks explanations by comparing two stylized constructs, Monsoon Asia (where the informal economy is dynamic) and Melanesia (where it is limited in scope and contribution to livelihoods). Papua (occupying the western half of the island of New Guinea) is seen as a meeting point, or zone of transition, between Monsoon Asia and Melanesia. A long history of 'trading and raiding' on this frontier marked the encounter between ceremonial exchange, as practiced by Melanesians, and the system of tribute imposed on Papuans by Moluccan sultanates. Limited economic specialization and exchange in Melanesia contrasted with the Asian household economy, enmeshed in complex social hierarchies and systems of occupational differentiation. Historically, the Malay Archipelago engaged in a world trading system, into which it drew west New Guinea/Papua over millennia. Travelling peddlers played a key role in the archipelagic trade system, demonstrating the antiquity of the informal economy tradition in the cultures of Monsoon Asia. The paper seeks explanations for the comparative absence of that tradition in Melanesia. Finally, it examines the recent and rapid emergence of an informal economy in Papua, dominated by non-Melanesian immigrants, in the wake of the incorporation of (Dutch) west New Guinea into the Republic of Indonesia in 1963. |
| Keywords: | Melanesia, Indonesia, West New Guinea, Dutch East Indies, Papua New Guinea, spice trade, pre-modern trade, slavery, informal economy, Van Leur, Meilink-Roelofsz, Alfred Russel Wallace |
| JEL: | A12 B20 B25 F54 N75 N95 O17 P51 Z10 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:een:crwfrp:1304&r=iue |
| By: | James Alm (Department of Economics, Tulane University); Jay A. Soled (Department of Accounting and Information Systems, Rutgers Business School) |
| Abstract: | The United States has more automobiles per capita than any other country in the industrial world, and taxpayers use those automobiles for business and nonbusiness purposes. The former classification affords favorable individual income tax treatment, while the latter does not. However, to secure favorable tax treatment, taxpayers often mischaracterize their nonbusiness automobile expenses as business in nature, and they are able to do so with almost complete impunity. Using tabulations of Internal Revenue Service data, we demonstrate that such mischaracterizations result in a significant annual cost in terms of forfeited tax revenue. In addition, using elementary economic theory, we illustrate how taxpayer mischaracterizations result in additional demand for gasoline, which likely raises overall gasoline prices for all consumers. On the basis of our findings, we contend that immediate reforms are needed, and we present several legislative options for Congress to consider. We also argue that the experience of automobile expenses carries larger lessons for other types of tax expenditures, lessons that have relevance to the ongoing discussions about comprehensive tax reform measures. |
| Keywords: | tax compliance, individual income tax, itemized deductions |
| JEL: | H0 H3 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:1306&r=iue |
| By: | Andrés, Antonio R; Asongu , Simplice A |
| Abstract: | This paper employs a recent methodological innovation on intellectual property rights (IPRs) harmonization to project global timelines for common policies against software piracy. The findings on 99 countries are premised on 15 fundamental characteristics of software piracy based on income-levels (high-income, lower-middle-income, upper-middle-income and low-income), legal-origins (English common-law, French civil-law, German civil-law and, Scandinavian civil-law) and, regional proximity (South Asia, Europe & Central Asia, East Asia & the Pacific, Middle East & North Africa, Latin America & the Caribbean and, Sub-Saharan Africa). The results broadly show that a feasible horizon for the harmonization of blanket policies ranges from 4 to 10 years. |
| Keywords: | Software piracy; Intellectual property rights; Panel data; Convergence |
| JEL: | F42 K42 O34 O38 O57 |
| Date: | 2013–01–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:45631&r=iue |