nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2013‒05‒24
four papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Taxing the Small: Fostering Tax Compliance Among Small Enterprises in Developing Countries By William F. Fox; Matthew Murray
  2. Measuring tax effort: Does the estimation approach matter and should effort be linked to expenditure goals? By Musharraf Cyan; Jorge Martinez-Vazquez; VIoleta Vulovic
  3. Do Financially Constrained Firms Suffer from More Intense Competition by the Informal Sector? Firm-Level Evidence from the World Bank Enterprise Surveys By Julia Friesen; Konstantin Wacker
  4. Inflation and poverty in México 1993–2009 By Carlo Alcaraz

  1. By: William F. Fox (Center for Business and Economic Research and Department of Economics, University of Tennessee.); Matthew Murray (Baker Center for Public Policy, Center for Business and Economic Research and Department of Economics, University of Tennessee)
    Abstract: We first discuss a more nuanced view of the tax compliance game from the evolving perspective of behavioral economics. This discussion is followed by a more traditional analysis of issues related to taxation of the small drawing on recent insights and policy interventions. Our discussion generally blends issues of tax structure with various facets of tax administration and enforcement. In most instances the tax instrument in question is the VAT since it is the dominant revenue source in most developing countries, though we recognize there are compliance problems with all revenue instruments.
    Date: 2013–04–07
  2. By: Musharraf Cyan (International Center for Public Policy. Andrew Young School of Policy Studies, Georgia State University); Jorge Martinez-Vazquez (International Center for Public Policy. Andrew Young School of Policy Studies, Georgia State University); VIoleta Vulovic (International Center for Public Policy. Andrew Young School of Policy Studies, Georgia State University)
    Abstract: In this paper we attempt to take a fresh look at the classical question of the determinants of tax effort. Our goal is to better understand the fundamental economic logic of the different approaches that have been used in the previous literature, consider alternative measurements which may provide a more direct intuition of what the concept of tax effort attempts to measure, and to compare quantitatively the rankings of tax effort produced by all these different approaches. As we see it, the fundamental issue is how to move forward toward a definition of tax effort that has a higher relevance to the developmental needs and budgetary ambitions of a country and as an indicator of potential tax reform needs. Fundamentally, all tax effort indicators are calculated by comparing actual collection performance against a measure of potential collections. This definitional choice lays out several dimensions for the conduct of tax policy in a country. These include the need for reform to raise revenues with reference to some potential, the desirable timing and urgency of those reforms, and the extent of the gains in national welfare that are achievable with these reforms. While the first two dimensions have been examined in different ways in the previous literature, in this paper, for the first time in this literature, we will examine how much the two different approaches to estimation of tax effort matter as compared to those conventionally used. In addition, and also for the first time in this literature, in this paper we argue for the need to explicitly link the adequacy of tax effort with the specific expenditure goals of government and their associated gains in national welfare.
    Date: 2013–04–07
  3. By: Julia Friesen (Georg-August-University Göttingen); Konstantin Wacker (Vienna University of Economics and Business)
    Abstract: This paper investigates which firms suffer from informal competition and highlights the role of access to finance in this context. We use cross-sectional data from the World Bank Enterprise Surveys covering 42,000 firms in 114 developing and transition countries for the period 2006 to 2011 and take discrete responses on the perceived severity of financial constraints and informal competition for our empirical analysis. We find that financially constrained firms face significantly more intense competition by the informal sector and that this effect is economically large. In fact, financial constraints are the most important reason why firms suffer from informal competition. Other influential variables are ill-designed labor market regulations, corruption, and firm size. A wide range of robustness checks substantiates this finding.
    Keywords: Firm finance; informal competition; enterprise survey data; ordered logit model
    JEL: C25 D21 O17
    Date: 2013–05–21
  4. By: Carlo Alcaraz (Banco de México)
    Abstract: In this paper, we analyze the effects of inflation on poverty in Mexico from 1993 to 2009. We also include sector composition of GDP and informal work as determinants of poverty in Mexico. We use two measures for poverty: the percentage population whose household income per capita is below the poverty line, and poverty gap. We estimate a fixed-effects model and obtain the following results: 1) a 10% increase in inflation translates into 13% more poverty and a 17% increase in the poverty gap; 2) there is a positive relation between poverty and informal employment; and 3) relative growth of the services sector has contributed to the reduction of poverty.
    Date: 2013–05–13

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