nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2017‒01‒01
eight papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Tax compliance costs: Cost burden and cost reliability By Eichfelder, Sebastian; Hechtner, Frank
  2. Tax Morale, Aversion to Ethnic Diversity, and Decentralization AbstractThis paper analyzes the relationship between individuals' aversion to ethnic diversity, the degree of fiscal and political decentralization, and tax morale. Our theory is based on the assumption that individuals are risk averse in contributing to the provision of public goods benefiting other ethnic groups, and threfore display a lower tax morale. We find scope for policy intervention-specifically, our model predicts that the effect of individuals' aversion to ethnic diversity on taxmorale is smaller or null in decentralized political and fiscal systems relative to centralized ones. The theory highlights the role of decentralization reforms to cut down inter-ethnic redistribution in con icting environments. We test our results by using individual data from the World Value Survey, and several decentralization measures from Fan et al. (2009). According to our most preferred estimation, a one-scale change in the attitude toward ethnic diversity reduces tax morale of 0.03 in centralized system. We rather find no impact in decentralized states. By Alessandro Belmonte; Roberto Dell'Anno; Desiree Teobaldelli
  3. Eliciting permanent and transitory undeclared work from matched administrative and survey data By Peter Elek; Janos Kollo
  4. Accounting versus real production responses among firms to tax incentives: bunching evidence from Hungary By Pálma Mosberger
  5. On the determinants of fiscal non-compliance: an empirical analysis of spain’s regions By Mar Delgado-Téllez; Víctor D. Lledó; Javier J. Pérez
  6. Modelling less developed emerging markets:the case of monetary transmission in Tunisia By Jan Przystupa,; Ewa Wróbel
  7. Land Ownership, Access to Informal Credit and Its Cost in Rural Vietnam. By Migheli, Matteo
  8. The Insurance Premium in the Interest Rates of Interlinked Loans in a Small-scale Fishery By Marie-Catherine Riekhof

  1. By: Eichfelder, Sebastian; Hechtner, Frank
    Abstract: As documented by empirical research, tax compliance costs are a considerable burden for private businesses. However, cost estimates may be biased due to survey non-response and questionnaire framing effects. This paper investigates the impact of both aspects on cost estimates. We do not find significant evidence for a non-response bias. By contrast, our results indicate that framing effects regarding the temporal dimension of cost measurement (temporal framing effects) might alter cost estimates by about 39 percent downwards (65 percent upwards) on average and by up to 53 percent downwards (respectively 112 percent upwards) for small businesses. We also test a number of cost drivers with a focus on e-government features. We do not find any evidence that the use of Belgian e-government applications in 2002 and 2004 significantly reduced compliance costs.
    Keywords: compliance cost measurement,cost measurement error,cost drivers,non-response bias,temporal framing,e-filing,e-government
    JEL: C81 H21 H25 M41
    Date: 2016
  2. By: Alessandro Belmonte (IMT School for advanced studies); Roberto Dell'Anno (University of Salerno); Desiree Teobaldelli (University of Urbino)
    Keywords: Ethnic diversity, Decentralization, Tax morale, Risk-aversion
    JEL: J15 H26 H73
    Date: 2016–12
  3. By: Peter Elek (Department of Economics, Eötvös Loránd University (ELTE) Budapest); Janos Kollo (Centre for Economic and Regional Studies, Hungarian Academy of Sciences)
    Abstract: We study the undeclared work patterns of Hungarian employees in relatively stable jobs, using a panel dataset that matches individual-level self-reported Labour Force Survey (LFS) data with administrative data from the Pension Directorate for 2001–2006. We estimate the determinants of undeclared work using Heckman-type random-effects panel probit models, and develop a two-regime model to separate permanent and transitory undeclared work, where the latter follows a Markov chain. We find that about 6 per cent of workers went permanently unreported for six consecutive years, and a further 3-4 per cent were transitorily unreported in any given year. By simulating the permanent and transitory components of undeclared work, we examine the implications for health and pension eligibility.
    Keywords: undeclared work, labour input method, matched administrative-survey data, random-effects panel probit model with endogenous selection, Markov chain
    JEL: C23 C25 H26 J46
    Date: 2016–06
  4. By: Pálma Mosberger (Magyar Nemzeti Bank, Central Bank of Hungary)
    Abstract: Existing evidence indicates that companies’ reported earnings react to tax incentives, but we do not know whether these are accounting responses, evasion responses or real responses. This paper tests for the responses using a quasi-experimental design of a corporate minimum tax scheme introduced in Hungary in 2007 that widened the tax base only for firms with low reported profit rate (profit as a share of revenue). With a new panel dataset containing administrative tax records on corporations I replicate previous findings on the earnings responses to tax incentives, but also document three additional pieces of evidence that suggest accounting rather than real responses. First, companies reacted too quickly to the change in incentives to reflect real responses: only a half year after the introduction of the reform the data exhibit sharp bunching in the distribution of profit rates in accordance with the new incentives. Second, direct measures of real production responses suggest no significant behavioral reactions. Additional analysis of the reported cost structure of corporations shows large changes only in reported material cost which is the most easily over-reportable item, supporting the reasoning that reported changes are mostly coming from reduced cost over-reporting.
    Keywords: taxation, firm behavior, tax evasion and avoidance
    JEL: D22 H26 H32
    Date: 2016
  5. By: Mar Delgado-Téllez (Banco de España); Víctor D. Lledó (International Monetary Fund); Javier J. Pérez (Banco de España)
    Abstract: This paper proposes an empirical framework that distinguishes between voluntary and involuntary compliance with fiscal deficit targets on the basis of economic, institutional and political factors. The framework is applied to Spain’s Autonomous Communities (regions) over the period 2002-2015. Fiscal non-compliance among Spain’s regions has proven persistent. It increases with the size of growth forecasting errors and the extent to which fiscal targets are tightened, factors not fully under the control of regional governments. Non-compliance also tends to increase during election years, when vertical fiscal imbalances become accentuated, and market financing costs subside. Strong fiscal rules have not shown any significant impact on containing fiscal noncompliance. Reducing fiscal non-compliance in multi-level governance systems such as Spain’s requires a comprehensive assessment of inter-governmental fiscal arrangements that looks beyond rules-based frameworks by ensuring enforcement procedures are politically credible.
    Keywords: fiscal compliance, rules, fiscal federalism, soft budget constraints
    JEL: H61 H68 H72 H77
    Date: 2016–12
  6. By: Jan Przystupa,; Ewa Wróbel
    Abstract: Our paper is a case study devoted to a country which belongs to a group of less developed EMEs (LDEMEs), not depending on natural resources. In spite of many features which distinguish such countries from developed market economies, they are frequently modelled basing on assumptions which are better-suited for mature economies, e.g. New Keynesian DSGE models. From the point of view of monetary transmission analysis, the most important distortions which make LDEMEs special are: underdeveloped shallow financial markets, uncompetitive labour market, informal economy, weak institutions, problematic central bank independence, state ownership and controls, especially of prices and in the financial sector. In the paper we propose a complex way of proceeding in modelling the LDMEs, starting from the stylized facts and assessment of a distance of the modelled economy from theoretical assumptions and pointing at the most problematic sectors, through structural VARs providing reactions to shocks with a relatively small number of assumptions, to a suite of structural models, estimated with classical and Bayesian methods, to have a range of possible reactions. We show that to be applicable, the standard NK models need to be adjusted with specific features of LDEMEs.
    Keywords: (LDEMEs), monetary transmission, VAR, structural models.
    JEL: E51 E52
    Date: 2015
  7. By: Migheli, Matteo (University of Turin)
    Abstract: Access to credit and its cost is a major challenge for farmers in developing countries. Formal moneylenders often ration these economic agents, as they lack assets to give as collateral for the loans. The phenomenon is particularly diffused in the countryside, where the formal moneylenders are less present. Consequently, farmers resort to informal credit. Several studies show that land serves as collateral for accessing formal credit, but they often do not find any significant effect of land size on access to informal credit. Here I study the effects of land ownership on both the demand and the cost of informal credit in the Mekong Delta. Vietnam is an interesting country for studying this issue, as informal credit is widespread in the countryside, despite the government’s effort to eradicate it, also subsidising the formal lenders. The analysis is based on 603 households farming relatively small parcels. The results show that as land ownership increases, both the demand and the cost of informal loans decrease. This result is relevant in developing countries, where land reforms are still ongoing, as it shows that land redistribution may contribute to the development of formal credit markets. In particular, from a policy point of view, design and implementation of appropriate land redistributions appears to be a fundamental way to fight the informal credit market.
    Date: 2016–11
  8. By: Marie-Catherine Riekhof (ETH Zurich, Switzerland)
    Abstract: Interest payments based on income flows are a common feature of informal loans. Such so-called `interlinked loans' can be seen as an insurance against very low disposable incomes, as interest payments are lowest when income turns out to be low. This paper examines whether interlinked loans indeed contain an insurance premium and how those premia are determined. A simple theoretical model predicts that interest rates of interlinked loans increase with income volatility when insurance premia exist. Based on data from a small-scale fishery in India, calculations show that on average, lenders receive 25% of the income, which corresponds to an average interest rate of 49% p.a.. A panel data analysis confirms theoretical predictions that interlinked loans contain an insurance component paid by the borrowers.
    Keywords: Interlinked loan, Insurance premium, Interest rate, Small-scale fishery, Informal insurance, Informal credit markets, Interlinked contracts, Risk-sharing, India
    JEL: O16 O17 Q22 H23 Q54 O31
    Date: 2016–12

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