nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2015‒07‒11
six papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Tax evasion and tax fraud in the bankruptcy process: empirical evidence from Portugal By Ana Dinis; Cidália Lopes; Alexandre Silva
  2. Perception of tax evasion and tax fraud in Portugal: a sociological study By Maria Poço; Cidália Lopes; Alexandre Silva
  3. Sheltered Income: Estimating Income Under-Reporting in Canada, 1998 and 2004 By Geoffrey R. Dunbar; Chunling Fu
  4. Persistence of informality in a developing country By Juan Muro; Jhon James Mora
  5. Experimental Evidence on the Long-Term Impacts of a Youth Training Program By Ibarrarán, Pablo; Kluve, Jochen; Ripani, Laura; Rosas Shady, David
  6. Economia informal e exclusão social By Óscar Afonso; Nuno Gonçalves; Hélder Ferreira

  1. By: Ana Dinis; Cidália Lopes (Instituto Superior de Contabilidade e Administração de Coi); Alexandre Silva
    Abstract: This article aims to analyze the taxation of insolvent companies and how this process can lead to more tax evasion and tax fraud, in Portugal. Thus, this paper intends to explore how the complexity of the tax system allows tax evasion and tax fraud in insolvency proceedings. This paper is divided in two parts. At first, a review of major studies in national and international context, analyze and debate the issues raised by taxation of insolvent companies from the perspective of tax evasion and fraud. In this regard, the complexity of business insolvency, which becomes even more controversial when embracing the taxation of insolvent companies. Many of the problems that arise for the correct identification of the tax treatment applicable to processes happen to set between tax law and bankruptcy law. Second, we present the results of a study conducted in Portugal in 2013, which qualitatively assesses the perceptions of the Insolvency Administrators (AI), in relation to the taxation of insolvent companies. The technique used for gathering information was the use of questionnaires administered to the entire population of AI. A response rate of 15.48% was obtained. It was concluded that the Portuguese tax system do not make taxation of insolvent companies a clear process, raising many questions about the subject of insolvent companies to tax. Furthermore, the CIRE by giving primacy to the insolvency, for the sake of business recovery, leads to the possibility of tax evasion and fraud. To sum up, it is deemed indispensable the harmonization of procedures, legal and tax, the CIRE and the CIRC in order to a more consistent treatment of tax in insolvency proceedings, in order to annul the tax evasion and tax fraud case insolvency and also allow business recovery.
    Keywords: insolvent firms. Tax on Corporate Income Tax (IRC). Tax evasion and fraud; insolvent firms. Tax on Corporate Income Tax (IRC). Tax evasion and fraud.
    JEL: G33 K34
    Date: 2015–02
  2. By: Maria Poço (Coimbra Business School - Instituto Superior de Contabilidade e Administração de Coimbra); Cidália Lopes (Coimbra Business School - Instituto Superior de Contabilidade e Administração de Coimbra); Alexandre Silva (Coimbra Business School - Instituto Superior de Contabilidade e Administração de Coimbra)
    Abstract: This article aims to analyze the perception of individual taxpayers on tax evasion, in Portugal. The international literature emphasizes the existence of several determinants that influence the taxpayers’ decision in comply or not comply with their fiscal obligations. We highlight the economic, cultural, sociological, psychological and technical determinants (Allingham, 1972; Torgler, 2006; Tsakumis, 2007; McGee, 2009). This paper intends to study the relationship between sociological factors and the behavior of taxpayers in relation to tax compliance. To achieve these objectives, we use, as a technique of gathering information, interviews using a questionnaire - survey, which we have applied to a heterogeneous sample of the Portuguese population of individual taxpayers. We have Inquired 134 individual taxpayers, in the city of Coimbra. We conclude, by using a regression model, that tax evasion in Portugal, is justifiable, in certain circumstances, for some taxpayers respondents. The main arguments justifying tax evasion are associated with the unfairness of the tax system, the high tax burden, and the waste or misuse of taxpayers’ money and finally the corruption among the political class. Furthermore, the possibility of taxpayers to be discovered by the tax authorities is not presented as an argument justifying tax evasion, thus we verified this is not a deterrent to the practice of tax evasion and tax fraud in Portugal.
    Keywords: tax evasion, taxes, perception, individual taxpayers
    JEL: H26 K34 H31
    Date: 2015–02
  3. By: Geoffrey R. Dunbar; Chunling Fu
    Abstract: We use data from the Survey of Financial Security and the Survey of Household Spending to estimate the incidence and extent of income under-reporting in Canada in 1998 and 2004. We estimate that the proportion of households under-reporting income is roughly 35 to 50 per cent in both years. Our estimates also suggest that the amount of under-reported income rose by roughly 40 per cent between 1998 and 2004 and remained stable as a proportion of GDP of 14 to 19 per cent. We find evidence that income underreporting is pervasive and is not confined to households that report self-employment income in the survey data. We also find that poverty measures that rely on reported income appear unreliable because under-reporting necessarily implies a lower reported income. Thus, households that under-report appear to be poorer. We propose a simple ratio method of identifying households that under-report income using the household’s budget share on shelter.
    Keywords: Domestic demand and components
    JEL: H26 I32 K42
    Date: 2015
  4. By: Juan Muro (Economics Department of Alcala University (Spain);); Jhon James Mora (Economics Department of Icesi University (Colombia). Member of Alcametrica at the University of Alcalá and of the Quantitative methods research at Icesi University)
    Abstract: Informality is a common phenomenon in developing countries and an unusual one in industrialized countries. The persistence of informal employment is indicative of the impossibility of moving out of this status for a certain period of time. Using pseudo panel data, empirical evidence is presented to show that this phenomenon occurs in a developing country like Colombia where education helps mitigate said persistent occurrence. The authors also present evidence that a minimum salary increase does not only result in increased informality, but also increases the persistence of informality. This kind of evidence can be used for discussing the persistence of informality in other developing countries.
    Keywords: Dynamic Informality, Pseudo Panel, Probit Models
    JEL: C36 C51 J81 J88
    Date: 2015–02
  5. By: Ibarrarán, Pablo (Inter-American Development Bank); Kluve, Jochen (Humboldt University Berlin, RWI); Ripani, Laura (Inter-American Development Bank); Rosas Shady, David (Inter-American Development Bank)
    Abstract: This paper presents the results of a randomized controlled trial on the long-term impacts of a youth training program. The empirical analysis estimates labor market impacts six years after the training – including long-term labor market trajectories of young people – and, to the best of our knowledge, is the first experimental long-term evaluation of a youth training program outside the US. We are able to track a representative sample of more than 3,200 youths at the six-year follow-up. Our empirical findings document significant impacts on the formality of employment, particularly for men, and impacts for both men and women in Santo Domingo, the capital of the Dominican Republic. The long-term analysis shows that these impacts are sustained and growing over time. There are no impacts on average employment, which is consistent with the low unemployment in countries with high informality and no unemployment insurance. Looking at the local labor market context, the analysis suggests that skills training programs work particularly well in more dynamic local contexts, where there is actual demand for the skills provided.
    Keywords: long-term, impact evaluation, randomized controlled trial, Dominican Republic, youth training, labor market outcomes
    JEL: J24 J64 O15 O17
    Date: 2015–06
  6. By: Óscar Afonso (University of Porto, CEF.UP and OBEGEF); Nuno Gonçalves (University of Porto, CEF.UP and OBEGEF); Hélder Ferreira (EAPN-Portugal)
    Abstract: The purpose of this paper is to analyse the accounting and legal basis that justify the application of presumptions in the taxation corporate income. The connection between errors on recording transactions by the financial accounting system and the use of presumptions by tax authorities will be highlighted. The paper contributes to the literature by offering a systematic analysis of the criteria used by Portuguese tax courts to decide when accounting data can be disregarded by tax authorities and presumptions can therefore be used as a tax computation tool. Given that the general rule is to base taxable income on accounting records (albeit with adjustments established in Corporate Income Tax Code) presumptions are a striking exception to this well established rule. As such, tax researchers, tax authorities and taxpayers have a significant interest in knowing how do courts validate or deny tax authorities’ approach when using presumptions.
    Keywords: Accounting errors, taxation and presumptions, financial fraud
    Date: 2015–02

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