nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2018‒03‒12
seven papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Corruption, Taxation, and Tax Evasion By James Alm; Yongzheng Liu
  2. The ghost of institutions past: History as an obstacle to fighting tax evasion By Aaron Kamm; Christian Koch; Nikos Nikiforakis
  3. Cautionary Tales: Celebrities, the News Media, and Participation in Tax Amnesties By Marcel Garz; Verena Pagels
  4. Myths and Numbers on Whistleblower Rewards By Nyreröd, Theo; Spagnolo, Giancarlo
  5. Inequality, good governance and endemic corruption By Gil S. Epstein; Ira N. Gang
  6. Tax and Corruption: A Global Perspective By Chris Evans; Richard Krever; James Alm
  7. Mass Incarceration and the Underground Economy in America By Brian Sykes; Amanda Geller

  1. By: James Alm (Department of Economics, Tulane University); Yongzheng Liu (School of Finance, Renmin University of China)
    Abstract: In this paper, we examine the relationships between corruption, taxation, and tax evasion. We examine three specific questions. First, on a general level, what do simple empirical analyses suggest about some of the causes and the consequences of corruption? Second, on a more specific level, what do similar empirical analyses indicate about the relationship between corruption and taxation? Third, on an even more specific level, what is the relationship between corruption, taxation, and tax evasion? We conclude with a discussion of how this evidence can be used to control corruption, making use of a different if related body of work on tax evasion.
    Keywords: Corruption, tax evasion, behavioral economics, controlled field experiments, laboratory experiments
    JEL: H2 H26 D73
    Date: 2018–03
  2. By: Aaron Kamm; Christian Koch; Nikos Nikiforakis (Division of Social Science)
    Abstract: If taxpayers believe past rates of compliance are indicative of the future, traditional measures for combating tax evasion can be compromised. We present evidence from a novel laboratory experiment with strategic complementarities showing that a history of low compliance can render a major institutional reform ineffective at reducing tax evasion. The experimental treatments manipulate the history of tax compliance by varying the percentage of tax revenue embezzled by a ‘politician’ – our measure of ‘institutional quality’. We show that tax compliance is substantially higher in good-quality than bad-quality institutions when there is no history of tax evasion. When a bad-quality institution is replaced with a good-quality one, however, tax compliance remains low, as if the institutional change had not occurred. The reason is that the institutional change leaves expectations about future compliance largely unaffected. A history of high-quality institutions, on the other hand, shields tax compliance only partly from institutional deterioration. We discuss reasons for this, policy implications of our findings and evidence that a society-wide poll can assist in overcoming the ‘ghost of institutions past’.
    Date: 2017–10
  3. By: Marcel Garz; Verena Pagels
    Abstract: This study uses an original state-level data set to investigate whether press coverage on trials for tax evasion by celebrities affects the likelihood that other tax payers participate in Germany’s tax amnesty program. To identify the causal effect, we use exogenous variation in the reporting, resulting from disasters and terrorist attacks that coincide with the celebrity trials. Instrumental variable estimates suggest that an increase in news coverage by the amount of an average trial raises participation in the tax amnesty program by approximately 22.5%.
    Keywords: news coverage, public trial, self-denunciation, tax evasion
    JEL: D83 H26 K34 L82
    Date: 2017
  4. By: Nyreröd, Theo (Independent); Spagnolo, Giancarlo (Stockholm Institute of Transition Economics)
    Abstract: Whistleblower rewards have been used extensively in the US to limit procurement fraud and tax evasion, and their use has been extended to fight financial fraud after the recent financial crisis. In Europe there is currently a debate on their possible introduction, but authorities appear considerably less enthusiastic than their US counterparts. While it is important that these tools are scrutinized by a lively democratic debate, many things have been written, even by important institutional players, that have no empirical backing or that are in open contrast with the available evidence from independent research. In this paper we review some of the most debated issues regarding the potential benefits and costs of financial incentives whistleblowers trying to separate existing empirical evidence from conjectures with no empirical support, and myths in obvious contrast with available evidence.
    Keywords: whistleblowers; rewards; economic crime; tax evasion; corruption
    JEL: C92 D04 G28 K42
    Date: 2017–12–18
  5. By: Gil S. Epstein; Ira N. Gang
    Abstract: Can a society suffering contests between rich and poor achieve good governance in the face of endemic corruption? We examine a stylized poor state with weak institutions in which a ‘culture of evasion’ damages state authority. Many evade tax payments, limiting the state’s economic development capability. In the face of extensive corruption, it is challenging for the state to establish and implement policies reflecting good governance; for example, a government that is accountable and transparent, efficient and effective, and follows the rule of law. The rich and poor possess different views on what is the appropriate level of enforcing proper payments of taxes due. The government needs to design an effective tax administration policy that minimizes corruption and is sensitive to the present and future needs of society. To do this it must understand what drives such widespread corruption.
    Date: 2018
  6. By: Chris Evans (UNSW Sydney and University of Pretoria;); Richard Krever (University of Western Australia); James Alm (Department of Economics, Tulane University)
    Abstract: This paper summarizes the discussion and the lessons at two recent conferences on corruption.
    Keywords: Corruption; taxation; tax compliance
    JEL: H2 H26 D73
    Date: 2018–03
  7. By: Brian Sykes (University of California-Irvine); Amanda Geller (New York University)
    Abstract: With more than 850,000 people returning home from prisons and jails annually during an era of decarceration, understanding the labor market opportunities available to formerly incarcerated people is important for public policy. Yet, the mark of a criminal record has profound impacts on the employment and wage trajectories of disadvantaged men. Correspondence and audit studies routinely find that low-wage, secondary sector employers actively discriminate against those with criminal records, even when firms say they are open to hiring the formerly incarcerated. In this paper, we investigate whether the underground economy provides employment opportunities for men with criminal histories. Specifically, we assess whether formerly incarcerated men are more likely than their never-incarcerated counterparts to work in the underground economy, and how macroeconomic conditions shape the likelihood of working in the informal economy. We find that formerly incarcerated men are indeed more likely to work underground; however, the extent to which the macroeconomy shapes their odds of employment in either the formal or underground economies is significantly different for incarcerated men than their never-incarcerated counterparts. Our results have implications for understanding patterns of employment and wage mobility among disadvantaged men.
    Keywords: incarceration, dual labor markets, employment stratification, underground economy, informal economy
    JEL: K42 D63 E26
    Date: 2017

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