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on Informal and Underground Economics |
| By: | Schipper, Tyler |
| Abstract: | This paper investigates how the ability to innovate affects firms' decisions to operate informally and the aggregate consequences of their sectoral choice. I embed a sectoral choice model, where firms choose to operate in the formal or informal economy, into a richer general equilibrium environment to analyze the aggregate effects of firm-level decisions in response to government taxation. I calibrate the model and conduct simulations to quantify the impacts on the aggregate economy. I find that a change in tax rates from 50% to 60% leads to a 20.9% reduction in the size of the formal sector. This change is accompanied by a 0.07 percentage point reduction in TFP growth per year. Given that countries like Mali, Mexico, and Sri Lanka impose total tax rates near 50%, these findings have significant and applicable policy implications across a broad range of lesser developed countries. Even at lower tax rates, for instance 10%, a 10% increase, decreases the size of the formal sector by more than 7.7%. |
| Keywords: | Informality, Innovation, Productivity Growth, TFP |
| JEL: | H32 O17 O31 O41 |
| Date: | 2014–05–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:69647&r=iue |
| By: | Hoon Choi (AQR Research Group. University of Barcelona.) |
| Abstract: | Labor market segmentation is a growing phenomenon in many countries across different continents. In 2007, the Korean government undertook a labor reform prohibiting undue discriminatory treatment against fixed-term, part-time, and dispatched workers in an attempt to address income inequality arising from labor market duality. By exploiting a gradual introduction of the anti-discrimination law by firm size, I identify the treatment effects of the anti-discrimination law on gaps in wage and non-wage benefits between regular and non-regular workers, taking a difference-in-differences approach, a quasi-experimental design. My findings suggest that the imposition of the anti-discrimination law has significantly narrowed gaps in labor conditions between regular and non-regular workers. Labor conditions of targeted non-regular workers did not improve at the expense of those of non-targeted non-regular workers. Nevertheless, non-targeted non-regular workers being treated in a less favorable way raises another concern about the possibility of overusing non-targeted non-regular workers. |
| Keywords: | Discrimination; Wage gap; Non-regular worker; Difference in differences; Korea JEL classification: J31; J42; J71; J78 |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:aqr:wpaper:201602&r=iue |
| By: | Pietro Battiston; Simona Gamba |
| Abstract: | We study the effect of social pressure on tax compliance, focusing on the compliance of shop sellers to the legal obligation of releasing tax receipts for each sale. We carry out a field experiment on bakeries in Italy, where a strong gap exists between the legal obligation and the actual behavior of sellers. Social pressure is manipulated by means of an explicit request for a receipt when not released. We employ an innovative approach to the identification of the treatment effect. We find that a single request for a receipt causes a 17 per cent rise in the probability of a receipt being released for a sale occurring shortly thereafter, causing on average more than two receipts to be released. We also find strong evidence of persistence in compliance decisions. |
| Keywords: | Tax evasion, field experiment, peer pressure, social pressure |
| JEL: | C93 H32 K34 |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:fbk:wpaper:2016-04&r=iue |
| By: | M. L. Bertotti; G. Modanese |
| Abstract: | A microscopic dynamic model is here constructed and analyzed, describing the evolution of the income distribution in the presence of taxation and redistribution in a society in which also tax evasion and auditing processes occur. The focus is on effects of enforcement regimes, characterized by different choices of the audited taxpayer fraction and of the penalties imposed to noncompliant individuals. A complex systems perspective is adopted: society is considered as a system composed by a large number of heterogeneous individuals. These are divided into income classes and may as well have different tax evasion behaviors. The variation in time of the number of individuals in each class is described by a system of nonlinear differential equations of the kinetic discretized Boltzmann type involving transition probabilities. |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1602.08467&r=iue |
| By: | Godin, M. (Université de Namur); Hindriks, J. (Université catholique de Louvain, CORE, Belgium) |
| Abstract: | The mobilization of domestic tax resource has become a key issue for developing countries. In this report, we provide some facts and figures on the levels and structures of taxation around the world with special attention to Low Income Countries, (LICs). We use the new ICTD database covering 203 countries with 40 tax items over the period 1980-2010. We discuss some principles of tax design in a global economy that are relevant for LICs. We also review some critical issues on corruption and compliance to see how they relate to growth and tax evasion. We then provide a benchmark framework to assess the overall performance of the government tax collection. We use the tax effort index that measures the gap between the potential tax and the actual tax. The novelty of this tax effort index is twofold. First it takes into account spatial variables to capture the geographic dependence. Second it breaks down the tax effort analysis tax item by tax item to capture the possible tax shift. We conclude with a full ranking of tax effort for all countries and some suggestions of tax reform for a subset of countries that are targeted by the Belgian Development Cooperation. |
| Keywords: | Corporate taxation, efficient tax administration, tax enforcement, source- based and destination based taxation, origin and destination principles, Tariffs |
| JEL: | C72 H23 H70 |
| Date: | 2015–06–19 |
| URL: | http://d.repec.org/n?u=RePEc:cor:louvco:2015028&r=iue |
| By: | International Monetary Fund |
| Abstract: | This report presents estimates of the tax gap for Finland for the period 2008–14. There are two main components to the RA-GAP methodology for estimating the VAT gap: 1) estimate the potential VAT collections for a given period; and 2) determine the accrued VAT collections for that period. The difference between the two values is the VAT gap. The methodology employs a top-down approach for estimating the potential VAT base, using statistical data on value-added generated in each sector and constructs the accrued VAT collections value from tax record data. One of the main purposes of this report is to estimate the compliance gap. The compliance gap is the difference between the potential VAT that could have been collected given the current policy framework and actual accrued VAT collections. Other tax gap measures can be determined using different methods for determining potential VAT, and these other measures are important in understanding all the factors which are affecting current collections. This report will provide estimates for these other gap measures as well, and compare and contrast them with the compliance gap. |
| Date: | 2016–02–23 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/60&r=iue |
| By: | International Monetary Fund |
| Abstract: | This report presents estimates of the tax gap for Denmark for the period 2008–12. There are two main components to the RA-GAP methodology for estimating the VAT gap: 1) estimate the potential VAT collections for a given period; and 2) determine the accrued VAT collections for that period. The difference between the two values is the VAT gap. The methodology employs a top-down approach for estimating the potential VAT base, using statistical data on value-added generated in each sector and constructs the accrued VAT collections value from tax record data. One of the main purposes of this report is to estimate the compliance gap. The compliance gap is the difference between the potential VAT that could have been collected given the current policy framework and actual accrued VAT collections. Other tax gap measures can be determined using different methods for determining potential VAT, and these other measures are important in understanding all the factors which are affecting current collections. This report will provide estimates for these other gap measures as well, and compare and contrast them with the compliance gap. |
| Date: | 2016–02–23 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/59&r=iue |
| By: | Cardoso-Vargas, Carlos |
| Abstract: | This paper examines the relationship between market potential and wages of manufacturing workers in the states of Mexico, using a standard model of New Economic Geography. The evaluation is considered an important aspect in developing countries, such as the distinction between formal and informal workers. The estimates show that, in general, the elasticity of market potential on wages is 0.082, which is robust to different measures related to the theories of agglomeration and endogeneity problems and spatial autocorrelation. It is also found that wages of informal workers are less sensitive to changes in market potential compared to the wages of formal employees and benefit from externalities generated by the presence of foreign firms. A simulation suggests that up to 10.7% of the wage gap between workers in states bordering North America and located in southern Mexico can be attributed to economic geography; this effect is smaller for informal workers and for the case of formal doubles. |
| Keywords: | Wage inequality , agglomeration economies, new geography economic, formal sector and informal sector. |
| JEL: | J31 O17 R12 |
| Date: | 2015–04–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:69696&r=iue |