nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2015‒05‒22
nine papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Dodging the Taxman: Firm Misreporting and Limits to Tax Enforcement By Carrillo, Paul; Pomeranz, Dina; Singhal, Monica
  2. Wealthy Tax Non-Filers in a Developing Nation: The Roles of Taxpayer Knowledge, Perceived Corruption and Service Orientation in Pakistan By Katharina Gangl; Erich Kirchler; Christian Lorenz; Benno Torgler
  3. Informal Labor Contracts: a Solution or a Problem? By Ricardo Barros; Ricardo Mello; Valéria Pero
  4. Informal work in the United States: evidence from survey responses By Bracha, Anat; Burke, Mary A.
  5. On the Empirical Content of the Formal-informal Labor Market Segmentation Hypothesis By Ricardo Paes de Barros
  6. How Do Minimum Wage Policies Affect Workers in Emerging Markets? By Albert Park
  7. Taxation and Investment in Colombia By Sarah Perret; Bert Brys
  8. Wages in Urban Brazil: Evidence of Regional Segmentation or National Markets By William D. Savedoff
  9. Produtividade do Trabalho nos Setores Formal e Informal no Brasil: uma avaliação do período recente By Gabriel Coelho Squeff

  1. By: Carrillo, Paul; Pomeranz, Dina; Singhal, Monica
    Abstract: Reducing tax evasion is a key priority for many governments, particularly in developing countries. A growing literature argues that cross-checks of taxpayer reports against third-party information are critical for effective tax enforcement. However, such cross-checks may have limited effectiveness if taxpayers can make offsetting adjustments on other margins. We present a simple framework demonstrating conditions under which this occurs and empirical evidence from a natural experiment in Ecuador. When firms are notified about detected revenue discrepancies, they increase reported revenues - but also reported costs (by 96 cents per dollar of revenue adjustment), resulting in minor increases in tax collection.
    Keywords: Ecuador; evasion; tax
    JEL: H25 H26 O23 O38
    Date: 2015–05
  2. By: Katharina Gangl; Erich Kirchler; Christian Lorenz; Benno Torgler
    Abstract: Although tax non-filing and the resulting tax evasion are a challenge to public welfare of developing countries, scholarly knowledge on the subject is minimal. The present paper compares rich self- employed identified as non-filers with a randomized group of tax filers in terms of two bases of perceived tax system legitimacy: knowledge of taxpayers’ rights and perceived corruption. The results indicate that both factors relate to tax non-filing and moreover, that perceived service orientation of the tax administration, which reduces citizens’ ignorance of tax rights and doubts about authorities’ correct behaviour might foster perceived legitimacy and in turn increase tax compliance.
    Keywords: Wealthy tax non-filers; tax morale; tax compliance; tax knowledge; knowledge of rights; corruption; tax evasion; developing countries; Pakistan
    JEL: H26 O17 E26 H70 I30
    Date: 2015–05
  3. By: Ricardo Barros; Ricardo Mello; Valéria Pero
    Date: 2015–01
  4. By: Bracha, Anat (Federal Reserve Bank of Boston); Burke, Mary A. (Federal Reserve Bank of Boston)
    Abstract: "Informal" work refers to temporary or occasional side jobs from which earnings are presumably not reported in full to the Internal Revenue Service and which typically do not constitute a dominant or complete source of income. Perhaps the most important reason for undertaking informal work is to offset negative income and employment shocks, such as reduced hours in a formal job, stagnant wages, or involuntary unemployment. Such negative shocks affected many Americans during the Great Recession, so it is important to determine the extent to which people engaged in informal work during this sustained downturn and how much it helped them economically. New web-based applications (such as Uber) that facilitate a variety of informal earnings opportunities mean that more people may undertake informal work. The authors designed the Boston Fed's Survey of Informal Work Participation (SIWP) to identify the types of individuals who undertake in such activities, how much they earn, their current employment status, how they rate the value of informal work in helping to offset negative shocks, and to explore how the Internet and mobile applications have facilitated the opportunities for engaging in informal paid work via the "peer-to-peer" economy.
    JEL: R11 R23
    Date: 2014–12–01
  5. By: Ricardo Paes de Barros
    Abstract: In this paper we pursue three objectives. First, we compare the wage-distributions in the informal and formal sectors for a group of workers employed in the Brazilian Construction Sector. The empirical regularities we encounter are not, however, specific to this particular group of workers. Indeed, similar resulta are also observed for several other homogeneous groups. Second, we investigate how observed differences in means, variances, and quantiles should be interpreted. Finally, we describe three models for the formal-informal segmentation of the labor market, analyse their consistency with the observed regularities, and discuss how these regularities should be interpreted in the context of each individual model. We conclude that the observed regularities are consistent with a wide range of models, although their interpretation varies remarkably depending on the model we are considering.
    Date: 2015–01
  6. By: Albert Park (Department of Economics, Hong Kong University of Science and Technology; Division of Social Science, Hong Kong University of Science and Technology; Institute for Emerging Market Studies, Hong Kong University of Science and Technology)
    Abstract: Prof. Albert Park, Director of HKUST IEMS, Chair Professor at HKUST's Division of Social Science, and Professor at HKUST's Department of Economics, reviews the efficacy of minimum wage policies across BRICS countries–i.e. Brazil, Russia, India, China, and South Africa–highlighting their success or lackthereof as related to critical factors such as labor market coverage, policy enforcement, minimum wage level as compared to mean wages, and others. Prof. Park notes that while minimum wage policies in BRICS countries generally increase wages at the bottom end of the wage distribution, their impact on employment and wealth inequality is less defined. The impact of such minimum wage policies closely tied to the levels of policy compliance and enforcement in each country. For example, in China, India, and South Africa–where enforcement is relatively high–minimum wages have had marked positive effects on labor markets (serving as a sort of "lighthouse effect")–while in Russia and Brazil such regulations may have increased employment in informal labor markets.
    Keywords: minimum wage policy, emerging markets, China, Russia, South Africa, Brazil, India, BRICS, minimum wage enforcement, minimum wage compliance
    JEL: E24 J31 J41
    Date: 2015–04
  7. By: Sarah Perret; Bert Brys
    Abstract: The Colombian corporate tax system is highly complex and distortive. The effective tax burden on businesses is very high due to the combined effect of the corporate income tax, the corporate surtax introduced in 2012 (CREE), the net wealth tax on business assets and the value added tax (VAT) on fixed assets. Indeed, in addition to high statutory taxes on corporate income, formal sector businesses are subject to a wealth tax on their net assets and to a production-based VAT system under which VAT paid on the purchases of fixed assets is not creditable against output VAT. Calculations in this paper find that the total marginal effective tax rate reaches about 60% for equity-financed investments. Such a high effective corporate tax burden is likely to deter investment and to further encourage tax evasion in the future and therefore calls for a fundamental business tax reform. This paper also reviews the other key elements of the capital income tax system in Colombia. This Working Paper relates to the 2014 OECD Economic Survey of Colombia (<P>Fiscalité et investissement en Colombie<BR>Le système d'imposition des sociétés en Colombie est très complexe et génère d’importantes distorsions. La charge fiscale effective sur les entreprises est très élevée en raison de l'effet combiné de l’impôt sur les sociétés, de la surtaxe sur les sociétés introduite en 2012 (CREE), de l'impôt sur les actifs nets des entreprises et de la taxe sur la valeur ajoutée (TVA) afférente aux immobilisations. En effet, en plus d’impôts élevés sur les sociétés, les entreprises du secteur formel sont soumises à un impôt sur leurs actifs nets et à un système de TVA selon lequel la TVA payée sur les actifs immobilisés n’est pas déductible. Les calculs dans cet article montrent que le taux marginal d’imposition effectif atteint au total environ 60 % pour les investissements financés par fonds propres. Une telle charge fiscale effective sur les entreprises est de nature à dissuader l'investissement et à encourager davantage l'évasion fiscale à l’avenir et nécessite donc une réforme structurelle de la fiscalité des entreprises. Cet article examine aussi les autres éléments clés de la taxation des revenus du capital en Colombie. Ce document de travail se rapporte à l’Étude économique 2014 de l’OCDE sur la Colombie ( ique-colombie.htm).
    Keywords: taxation, investment, Colombia, Colombie, investissement, fiscalité
    Date: 2015–04–30
  8. By: William D. Savedoff
    Date: 2015–01
  9. By: Gabriel Coelho Squeff
    Abstract: Este texto discute a evolução da produtividade do trabalho nos setores formal, informal e de outras unidades familiares segundo atividade econômica. Com base em um shift-share modificado que lida com o problema de perda de aditividade, verificou-se que a produtividade agregada cresceu 7% entre 2001 e 2009, em decorrência do setor formal – uma vez que as atividades informais contribuíram negativamente – e de contribuições positivas da produtividade nas atividades (efeito direto) e da composição das ocupações (efeito ocupação). Ao se excluírem atividades com elevada parcela de produção não mercantil e imputada, obtêm-se resultados distintos: crescimento da produtividade agregada de apenas 2,2%, menor contribuição positiva do setor formal e efeito direto negativo e efeito ocupação positivo. Deste modo, é premente a adoção de políticas públicas que reduzam a informalidade e que promovam uma mudança estrutural em prol de atividades econômicas de maior valor agregado. In this paper we discuss the evolution of labor productivity in the formal, informal and other households units sectors disaggregated by economic activity. Based on a modified shift-share that deals with the loss of additivity problem, we found that aggregate productivity grew 7% between 2001 and 2009 due to the formal sector – once informal activities contributed negatively – and positive contributions of productivity within activities (direct effect) and from occupation’s composition (occupation effect).By excluding activities with high share of non-mercantile and imputed in total production, we found different results: aggregate productivity growth was only 2.2%, lower positive contribution from the formal sector, negative direct effect and positive occupation effect. Thus, it is urgent to adopt public policies in order to reduce informality and to promote a structural change in favor of higher added value activities.
    Date: 2015–04

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