nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2016‒08‒21
seven papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Informality as a Stepping Stone: A Search-Theoretical Assessment of Informal Sector and Government Policy By Tumen, Semih
  2. Politicians, bureaucrats, and tax morale: What shapes tax compliance attitudes? By Gabriel Leonardo; Jorge Martinez-Vazquez
  3. The Determinants of Tax Morale in Pakistan By Musharraf Rasool Cyan; Antonios M. Koumpias; Jorge Martinez-Vazquez
  4. VAT Evasion in Bulgaria: A General-Equilibrium Approach By Vasilev, Aleksandar
  5. VAT non-compliance in Poland under scrutiny (Problem nieœci¹galnoœci VAT w Polsce pod lup¹) By Grzegorz Poniatowski; dr. Jaros³aw Neneman; Tomasz Michalik
  6. Taking the High Road? Compliance with Commuter Tax Allowances and the Role of Evasion Spillovers By Paetzold, Jörg; Winner, Hannes
  7. Informalidad laboral y en la vivienda: primeros indicios para las principales ciudades colombianas By Jaime Bonet-Morón; Gerson Javier Pérez-Valbuena; Edwin Jaime Chiriví-Bonilla

  1. By: Tumen, Semih (Central Bank of Turkey)
    Abstract: This paper develops a model of sequential job search to understand the factors determining the effect of tax and enforcement policies on the size (i.e., employment share) of the informal sector. The focus is on the role of informal sector as a stepping stone to formal jobs. I argue that the stepping-stone role of informal jobs is an important concept determining how strongly government policies affect the size of informal sector. I measure the extent of the stepping-stone role with the intensity of skill accumulation in the informal sector. If informal jobs help workers acquire skills, gain expertise, and build professional networks for boosting the chances to switch to a formal job, then the size of the informal sector is less sensitive to government policy. In this case, the option value of a job in the informal sector will be high and a worker with an informal job will not rush to switch to a formal job when a policy encouraging formal employment is in effect. If, on the other hand, the informal sector does not provide satisfactory training opportunities, then the size of the informal sector becomes more sensitive to government policy. Calibrating the model to the Brazilian data, I perform numerical exercises confirming that the effect of government policy on the size of the informal sector is a decreasing function of the intensity of skill acquisition in the informal sector.
    Keywords: informal sector, stepping stone, government policy, job search, human capital, option value
    JEL: E26 J24 J38 J64
    Date: 2016–08
  2. By: Gabriel Leonardo (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)
    Abstract: What actions do governments take that may affect individual trust? Although the literature on tax morale has reported a positive relationship between trust in government and tax morale, it is less known what is that government does to elicit trust among taxpayers. Which government organizations are most likely to produce those actions? This paper examines how governments elicit tax morale by testing the proposition that trust in government is built by the way citizens are treated when receiving their share of public goods and services from government institutions charged with the delivery of those goods and services, known as the output side (Rothstein, 2005). We use data from close to forty countries in the 2005-2007 wave of the World Values Survey (WVS) and after controlling for the level of political rights and civil liberties, we find that trust in administrative (output) government institutions positively influences tax morale, especially in the case of people living in democratic countries.
    Date: 2016–08
  3. By: Musharraf Rasool Cyan (Department of Economics, International Center for Public Policy. Andrew Young School of Policy Studies, Georgia State University); Antonios M. Koumpias (Department of Economics, 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)
    Abstract: This paper examines what shapes taxpayersÕ attitudes towards tax compliance - otherwise known as tax morale - in Pakistan, a country that has struggled with low tax effort over the past decade. We exploit novel survey data collected in 2014 during a survey of individual taxpayers for the Federal Board of Revenue of Pakistan, which allows us to offer the first study of determinants of tax morale in Pakistan. These determinants are estimated using a binary probit regression model. Our results are, generally, in line with the findings of the modern empirical literature of tax morale in other countries. Overall, groups with lower labor force participation rates have more positive attitudes towards tax compliance in Pakistan. Educated respondents have higher tax morale in comparison to the illiterate but only those with very low or very high attainment levels have higher tax morale with respect to bachelorÕs degree holders. In addition, metropolitan areas which are the largest population centers, are industrialized and seats of government have significantly high tax morale. We show that females have significantly higher tax morale than males. However, their attitudes towards tax compliance drastically worsen with the passage of time to the extent that elderly males have higher tax morale than elderly females. Relevant from the perspective of the tax administration in Pakistan, these findings imply potentially substantial gains from increasing female labor force participation rates. More generally, addressing the current failures of tax administration and dealing with the horizontal inequity resulting from administrative weaknesses is likely to contribute materially to improving voluntary compliance.
    Date: 2016–07
  4. By: Vasilev, Aleksandar
    Abstract: This paper utilizes an otherwise standard micro-founded general-equilibrium setup, which is augmented with a revenue-extraction mechanism to assess the magnitude of VAT evasion. The model is calibrated to Bulgaria after the introduction of the currency board (1999-2014), as one of the very few countries in Europe with a non-differentiated consumption tax rate, and an economy where VAT revenue makes almost half of total government tax revenue. A computational experiment performed within this setup estimates that on average, the size of evaded VAT is a bit more than one-fourth of output, an estimate which is in line with the figures provided in both Philip (2014) and the European Commission (2014). In addition, model-based simulations suggest that increases in spending on law and order could generate substantial welfare gains by decreasing VAT evasion.
    Keywords: VAT evasion,general equilibrium,Bulgaria
    JEL: D58 E26 H26 K42
    Date: 2016
  5. By: Grzegorz Poniatowski; dr. Jaros³aw Neneman; Tomasz Michalik
    Abstract: Since 2009, despite constant growth in the tax base and only slight variations in effective rates, the trend in VAT revenue in Poland has been reversed, and inflows have become less stable. The ongoing decline in VAT collection and the increase in the uncertainty related to the main component of budget revenues is a very important problem, which in the light of growing budget spending may threaten the stability of public finances. Three experts: Grzegorz Poniatowski, dr. Jaros³aw Neneman and Tomasz Michalik examine the structure and the causes of the VAT gap as well as the legal context and possible methods of improving VAT compliance at national and European level.
    Keywords: Economics and Finance, Macroeconomics and Monetary Economics
    JEL: E E02 E5 E6 E42
    Date: 2016–06
  6. By: Paetzold, Jörg (University of Salzburg); Winner, Hannes (University of Salzburg)
    Abstract: This paper provides evidence of evasion in the context of a widely used commuter tax allowance, and explores evasion spillovers as a determinant of the individual compliance decision. For this purpose, we exploit discontinuities in the commuter allowance scheme and employ a research design resting on a large panel of individual tax returns. We find that around 30 percent of all allowance claims are overstated and, consistent with deliberate tax evasion, we observe sharp reactions of taxpayers to thresholds where the allowance discretely jumps to a higher amount. Further, we use variation in job changes to uncover spillover effects from the work environment on the individual compliance decision. These effects appear to be asymmetric: Job changers moving to companies with a higher fraction of cheaters increase their cheating. In contrast, movers to companies with a lower fraction of cheaters tend not to alter their reporting behavior. We provide suggestive evidence that the spillover has more to do with an information environment, but can ultimately not reject other behavioral explanations such as asymmetric persistence of norms.
    Keywords: Tax Evasion; Self-Reporting; Tax Deductions; Spillover Effects
    JEL: D83 H24 H26
    Date: 2016–08–04
  7. By: Jaime Bonet-Morón; Gerson Javier Pérez-Valbuena; Edwin Jaime Chiriví-Bonilla
    Abstract: Este documento lleva a cabo un análisis de la informalidad en la vivienda y la informalidad laboral, de sus características, su dinámica temporal, la relación que existe entre ellas y los principales factores asociados a cada una. Los resultados muestran reducciones sistemáticas en cada uno de estos indicadores desde 2009, con diferenciales regionales y evidencia de persistencia, de modo que eventos de alta, media o baja informalidad en las ciudades tienden a permanecer en el tiempo. Adicionalmente, se encontró una estrecha relación entre los dos tipos de informalidad, en el corto y en el largo plazo, en donde la probabilidad de enfrentar una de ellas aumenta ante la presencia de la otra. Dentro de los factores asociados a estos dos fenómenos se encuentran además el ingreso, el tamaño del hogar, la educación y la actividad económica de las empresas. ******ABSTRACT: In this paper an analysis of the labor informality and the informal settlements is carried out, together with their characteristics, dynamics, the relationship between them and their main influential factors. The results show systematic reductions in each of them since 2009, showing regional differences and a strong evidence of persistence, where high, medium, and low informality events in the cities tend to remain over time. In addition, it was found a close relationship between the two informalities, in the short and the long run, where the probability of being affected by one of them increases with the presence of the other. Within the main influential factors of these two phenomena we found income, household size, education and the firm’s economic activity.
    Keywords: informalidad laboral, informalidad urbana, vivienda, condicionesde vida
    JEL: J21 R0 I31
    Date: 2016–08–02

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