nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2013‒09‒24
four papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Measuring the Informal Economy in the Caucasus and Central Asia By Yasser Abdih; Leandro Medina
  2. Jointly optimal taxes and enforcement policies in response to tax evasion By PESTIEAU, Pierre; POSSEN, Uri M.; LUTSKY, Steven M.
  3. Effects of supervision on tax compliance: Evidence from a field experiment in Austria By Katharina Gangl; Benno Torgler; Erich Kirchler; Eva Hofmann
  4. Enlisting Employees in Improving Payroll-Tax Compliance: Evidence from Mexico By Kumler, Todd J.; Verhoogen, Eric; Frias, Judith A.

  1. By: Yasser Abdih; Leandro Medina
    Abstract: This study estimates the size of the informal economy, and the relative contribution of each underlying factor, for the Caucasus and Central Asia countries in 2008. Using a Multiple Indicator-Multiple Cause model, we find that a burdensome tax system, rigid labor market, low institutional quality, and excessive regulation in financial and products markets are determinant factors in explaining the size of the informal economy, which ranges from 26 percent of GDP in Kyrgyz Republic to around 35 percent of GDP in Armenia. Furthermore, the results show that higher levels of informality increase the levels of self employment and the percentage of currency held outside the banking system.
    Keywords: Shadow economy;Central Asia;Tax burdens;Labor markets;Economic models;Cross country analysis;Informal economy; latent variable; Caucasus and Central Asia.
    Date: 2013–05–31
  2. By: PESTIEAU, Pierre; POSSEN, Uri M.; LUTSKY, Steven M.
  3. By: Katharina Gangl; Benno Torgler; Erich Kirchler; Eva Hofmann
    Abstract: The tax compliance literature has mainly focused on individual tax evasion rather than firm tax evasion. In general, there is a lack of field experiments on the topic, and measuring tax compliance is challenging. To address this shortcoming in the literature, we conduct a field experiment on firm tax compliance looking at newly founded firms. As a novelty we explore how firms react to closer supervision by the tax administration, looking at timely paying which has no measurement biases. Interestingly, we observe a crowding-out effect of supervision on timely paying of taxes. On the other hand, for those who were non-compliant, supervision reduced the tax amount that was due.
    Keywords: : tax compliance, tax evasion, field experiment, deterrence, tax enforcement, supervision
    JEL: H26 C93 K42
    Date: 2013–08–19
  4. By: Kumler, Todd J. (Columbia University); Verhoogen, Eric (Columbia University); Frias, Judith A. (Mexican Institute of Social Security (IMSS))
    Abstract: Non-compliance of firms with tax regulations is a major constraint on state capacity in developing countries. We focus on an arguably under-appreciated dimension of non-compliance: under-reporting of wages by formal firms to evade payroll taxes. We develop a simple partial-equilibrium model of endogenous compliance by heterogeneous firms to guide the empirical investigation. We then compare two independent sources of individual-level wage information from Mexico – firms' wage reports to the Mexican social security agency and workers' responses to a household labor-force survey – to investigate the extent of wage under-reporting and how it responded to an important change in the social security system. We document that under-reporting by formal firms is extensive, and that compliance is better in larger firms. Using a difference-in-differences strategy based on the 1997 Mexican pension reform, which effectively tied pension benefits more closely to reported wages for younger workers than for older workers, we show that the reform led to a relative decline in under-reporting for younger workers. Within metro area/sector/firm size cells, the decline in under-reporting was greater in cells initially employing a younger workforce on average. The empirical patterns are consistent with our theoretical model and suggest that giving employees incentives and information to improve the accuracy of employer reports can be an effective way to improve payroll-tax compliance.
    Keywords: tax compliance, state capacity, Mexico, heterogeneous firms, pension reform
    JEL: O17 H26 H55
    Date: 2013–08

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