nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2017‒02‒19
three papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. The Intergenerational Causal Effect of Tax Evasion: Evidence from the Commuter Tax Allowance in Austria By Frimmel, Wolfgang; Halla, Martin; Paetzold, Jörg
  2. Trade and economic impacts of destination-based corporate taxes: By Martin, Will
  3. Economic transformation in Africa from the bottom up: Evidence from Tanzania: By Diao, Xinshen; Kweka, Josaphat; McMillan, Margaret S.

  1. By: Frimmel, Wolfgang (University of Linz); Halla, Martin (University of Innsbruck); Paetzold, Jörg (University of Salzburg)
    Abstract: Does tax evasion run in the family? To answer this question, we study the case of the commuter tax allowance in Austria. This allowance is designed as a step function of the distance between the residence and the workplace, creating sharp discontinuities at each bracket threshold. The distance to these brackets is a strong determinant of compliance since it corresponds to the probability of detection. The match of different administrative data sources allows us to observe actual compliance behavior at the individual level across two generations. To identify the intergenerational causal effect in tax evasion behavior, we use the paternal distance-to-bracket as an instrumental variable for paternal compliance. We find that paternal noncompliance increases children's non-compliance by about 20 percent.
    Keywords: tax evasion, tax morale, intergenerational correlation, intergenerational causal effect
    JEL: H26 A13 H24 J62 D14
    Date: 2017–01
  2. By: Martin, Will
    Abstract: Current US proposals for destination-based corporate taxes that effectively combine a value-added tax (VAT) and a wage subsidy raise important policy questions for countries considering them, and for their trading partners. This tax/subsidy package would not create trade barriers or export subsidies, and any changes in trade would result from the measures’ distributional consequences or short-run impacts on output. The package would leave business profits and rents untaxed, placing the burden of the tax entirely on consumers, with no offset from exchange rate appreciation. If anything, its introduction could cause a short-run real exchange rate depreciation. A key concern regarding this package is its small, volatile, and vulnerable revenue yield. At current US consumption and labor shares of gross domestic product (GDP), a 20 percent corporate cash-flow tax with a wage subsidy would generate only around 2 percent of GDP in revenues, a result that could be obtained with much less volatility from a 2.8 percent tax without the wage subsidy. Under the tax/subsidy regime, revenues would become negative if consumption and labor shares returned to their historical norms, requiring increases in other taxes. A 20 percent tax would raise consumer prices by up to 27 percent, taking into account state sales taxes, sharply cutting the living standards of people on fixed incomes. The average combined consumption tax rate of 33 percent would be the highest in the world and more than double the world-average VAT rate, creating incentives for avoidance and evasion.
    Keywords: Value Added Tax; taxes; fiscal policies; labour market; labor market; remuneration; income; subsidies; trade; economics; international trade; living standards; cash flow, VAT; corporate tax; cash-flow taxation; GST; social VAT, F13 Trade Policy, International Trade Organizations; F41 Open Economy Macroeconomics; H22 Taxation and Subsidies: Incidence; H25 Business Taxes and Subsidies including sales and value-added (VAT); H26 Tax Evasion,
    Date: 2017
  3. By: Diao, Xinshen; Kweka, Josaphat; McMillan, Margaret S.
    Abstract: At roughly 4 percent per year, labor productivity in Tanzania has grown more rapidly over the past 14 years than at any other time in recent history. Employment growth has also been strong, keeping up with population growth at roughly 2.5 percent per year; the bulk of employment growth (90 percent) has been in the nonagricultural sector. However, the vast majority of this nonagricultural employment growth has occurred in informal sector. Using Tanzania’s first nationally representative survey of micro-, small-, and medium-sized enterprises, this paper shows that firms in the informal sector contributed roughly half a percentage point to economywide labor productivity growth in Tanzania between 2002 and 2012. However, virtually all of the labor productivity growth contributed by informal firms came from a small subset of firms called the “in-between firms.†This paper considers attributes of the in-between firms that could be used for targeting financial and business services to firms with the potential to grow. This paper finds two salient characteristics of in-between firms that might lend themselves to targeting—their owners are more likely to keep written accounts and more likely to keep their savings in formal bank accounts.
    Keywords: TANZANIA; EAST AFRICA; AFRICA SOUTH OF SAHARA; AFRICA, structural change; labour productivity; labor productivity; informal sector; business enterprises; enterprises; accounts; accounting; banking; finance, informal economy,
    Date: 2017

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