nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2017‒07‒30
five papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Restricting or Abolishing Cash: An Effective Instrument for Fighting the Shadow Economy, Crime and Terrorism? By Schneider, Friedrich
  2. Limiting the Use of Cash for Big Purchases: Assessing the Case for Uniform Cash Thresholds By Sands, Peter; Weisman, Benjamin; Campbell, Haylea; Keatinge, Tom
  3. Moving towards "Cashlessness" in an emerging economy: A case study of latest policy steps in India By Dasgupta, Manjira
  4. The Effect of Taxpayer Education on Tax Compliance in Kenya.( a case study of SME's in Nairobi Central Business District) By Gitaru, Kelvin
  5. Education and tax morale By Rodríguez Justicia, David

  1. By: Schneider, Friedrich
    Abstract: This paper has four goals: First, the use of cash as a possible driving factor of the shadow economy is investigated. Second, the use of cash in crime, here especially in corruption, is also econometrically investigated. The influence is somewhat larger than on the shadow economy, but it is certainly not a decisive factor for bribery activities. Some figures about organized crime are also shown; the importance of cash is diminishing. Third, some remarks about terrorism are made and here a cash limit doesn’t prevent terrorism. Fourth, some remarks are made about the restriction or abolishment of cash on civil liberties, with the result that this will extremely limit them. The conclusion of this paper is that cash has a minor influence on the shadow economy, crime and terrorism, but potentially a major influence on civil liberties.
    Keywords: cash,cash limit,shadow economy,crime,corruption,transnational crime organizations,financial proceeds,money laundering,illegal cross-border flows,tax fraud figures
    Date: 2017
  2. By: Sands, Peter; Weisman, Benjamin; Campbell, Haylea; Keatinge, Tom
    Abstract: For all the hype about electronic payment systems, cash remains by far the world’s most popular mechanism. However, over the past year we have seen an intensification of the discussion about the role of cash in society. Cash has great advantages: it is familiar, simple to use and ubiquitously accepted. However, cash also has downsides. Because cash transactions leave no record, cash plays a critical role in money laundering, tax evasion and terrorist financing. This debate generates strong feelings, to the extent that it is sometimes depicted as a “war on cash”. Some decry moves to curtail cash usage as an unwarranted encroachment on individual liberty and a manifestation of an over-reaching state. Others see physical cash as a costly remnant of a pre-digital age that we should get rid of as soon as is feasible. Yet it is also possible to hold a position between these extremes: acknowledging the continued value of cash in modern society, whilst seeking ways to curb its misuse. In 2016 we witnessed a number of policy initiatives aimed at curbing the illicit use of cash. For example, the ECB decided to stop issuing the €500 note due to concerns about its role in illicit finance. India implemented a radical “demonetisation” strategy, abolishing the 500 and 1000 rupee notes in an effort to tackle the scourge of “black money”. Various governments promoted innovative digital payments systems to replace cash, accelerate financial inclusion and reduce benefit fraud...
    Date: 2017
  3. By: Dasgupta, Manjira
    Abstract: On November 08, 2016, India took a decisive step towards going “cashless” by suddenly announcing withdrawal of its existing currency notes of two highest denominations, namely, the Rs. 500/= and the Rs. 1000/=. The move, announced with a suddenness that took the entire nation by surprise, had at its root the purpose of countering the threefold menaces of rampant corruption, counterfeit money and cross-border and internal terror funding. It has generated widespread controversy, the main criticism being that while the policy intent was sound, the execution plan was rather unsound. With one of the highest cash-GDP ratio in the world (close to 11%), India was revealed by RBI (Reserve Bank of India) data as having a staggering share of nearly 86% held in Rs.500/= and 1,000/= notes in the currency stock in circulation (end of FY 2014-15). The cost of “retiring” this volume of currency was therefore, going to be enormous which, as economists like former World Bank Chief Kaushik Basu (Basu 2016) emphasize, could far exceed the gains. In view of the intriguing developments overtaking the Indian economy since the date of submission of the initial abstract, problems that subsequently emerged as considerably more pressing and pertinent have been treated in greater detail in this study. Consequently, the approach and methodology has been substantially modified, although of course retaining the original motivation. With its laudable objectives of striking at the cash-corruption link, India saw, within the first four days of the announcement of demonetization, a staggering surge in bank deposits exceeding USD 52 billion, leading to high hopes of trapping unaccounted or illegal money through this route, a hope that was unfortunately to be belied. Given the enormous problem of Non-Performing Assets plaguing Indian Banks, we have also paid special attention to this potential vast source of unaccounted money in some detail. Next, an overview of India’s vast informal sector has been given, and the guidelines by Schneider and Williams (2013) and Schneider and Buehn (2008) have been used in an attempt to estimate the shadow economy in India using cointegration in a MIMIC framework. Finally, not only did India’s decision to demonetize have enormous economic or financial implications, but it also has had huge social and political ramifications that must be recognized.
    Keywords: India,Demonetization,Cashlessness,Informal Sector,Shadow Economy
    JEL: E26 E42 E58 E65 G00 O17
    Date: 2017
  4. By: Gitaru, Kelvin
    Abstract: Tax is a very important aspect in any country. Revenue collected from taxes enables a country to provide services for its citizens and also development of its economy. However, Kenya does not collect as much revenue as it should. SMEs in particular have the potential of generating a lot of revenue for the government but this is not the case. This poses a significant problem to the government and the country’s growth as a whole. Therefore, this study aimed at assessing the effect of taxpayer education on tax compliance in Kenya, the case of SMEs in Nairobi CBD. The study established the effect of electronic taxpayer education, print media tax payer education, and stakeholder engagement on tax compliance. The target population was SMEs in Nairobi CBD Tax area. The study object was SMEs conducting business within Nairobi CBD. Data was collected by administration of pretested questionnaires to the owners of SMEs business. Data was analyzed using both descriptive and inferential statistics. The nominal and ordinal data was collected using questionnaires and later subjected to quantitative analysis using Statistical Package for Social Sciences. Data was presented in the form of frequency distribution tables & graphs. The study results showed that indeed; electronic taxpayer education, print media tax payer education, and stakeholder engagement, influences tax compliance among SMEs in Nairobi’s CBD area. Correlation Matrix was done to determine the correlation between the independent variables. The results showed that stakeholder’s sensitization is positively related to the taxpayers’ education to correctly calculate the tax compliance, with a correlation coefficient of 0.810. The study recommended that; there was need to improve on tax compliance in SMEs because they are below average, through intensive tax. For SMEs to improve their tax compliances, those involved in their tax matters need knowledge and skills to interpret the various tax laws and regulations. Tax compliance procedures should be simplified because in most cases they are found to be very complicated by SMEs, especially for those who do not keep proper books of account and sometimes do not understand the tax laws in order to reduce the compliance costs in terms of money and time. Small and Medium Enterprises should be levied lower amounts of taxes. The government should consider increasing tax incentives and exemptions. Reduce compliance costs, curb corruption, and improve on accountability and accessibility of KRA services.
    Keywords: Taxpayer education,Tax compliance,SME.
    JEL: H25 H26
    Date: 2017–07–01
  5. By: Rodríguez Justicia, David
    Abstract: While the determinants of tax morale have been widely studied in the literature, surprisingly, the fundamental influence of education on tax morale has yet to be investigated. Given the insights in the psychological and political science literature about the role of education in the formation of social values, in this paper, we analyze two channels through which education shapes tax morale. We find that while the tax morale of individuals that are net receivers of welfare state benefits increases with their educational level, it decreases with educational level among those who are net contributors. Furthermore, our results indicate that the more highly educated, who have been shown to be better able to assess information in the media on public affairs, exhibit higher levels of tax morale in countries that have better quality public services, a fairer tax system and more transparent institutions. JEL classification: H26; H52; I25 Key words: Tax morale; Tax compliance; Education; Welfare state benefits; Trust in public institutions
    Keywords: Frau fiscal, Educació moral, Educació i desenvolupament, 336 - Finances. Banca. Moneda. Borsa, 37 - Educació. Ensenyament. Formació. Temps lliure,
    Date: 2017

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