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on Informal and Underground Economics |
| By: | Jang-Ting Guo (Department of Economics, University of California Riverside); Fu-Sheng Hung (National Chengchi University, Taiwan) |
| Abstract: | Recent empirical studies have documented that the incidence of firms' tax evasion on their sales is negatively correlated with the country's level of financial development. Our analysis shows that this stylized fact can be theoretically accounted for within a small-open-economy model of optimal tax enforcement under asymmetric information in credit markets. In an economy with a more developed financial sector that exhibits smaller agency costs, we find that the government will raise its optimal probability of tax auditing, which in turn leads to more tax compliance. It follows that financial development and tax evasion are inversely related, as observed in the actual data. |
| Keywords: | Tax Evasion; Financial Development; Asymmetric Information; Credit Rationing. |
| JEL: | D82 H26 H32 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:ucr:wpaper:201810&r=iue |
| By: | Sokolovskyi, Dmytro |
| Abstract: | The article analyzes a tax evasion problem using game-theoretic tools. The model develops a well-known Alligham–Sandmo classic model by introducing parameters of “transparency” of detected violations, of cost of control, of tax evasion and of conscientious tax payment. For that model we calculated Nash-equilibrium conditions in pure strategies. Based on this we investigated the problem of optimization of real tax burden. It is shown that curve describing the dependence between actual tax burden from declared one has not 1 (like the Laffer curve), but 3 local maxima. Those findings may contribute to better calculation of tax burden in the real economy. |
| Keywords: | tax evasion; game-theoretic model; Nash-equilibrium; tax burden; pure strategies; Laffer curve |
| JEL: | C72 H26 H30 |
| Date: | 2018–04–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:86415&r=iue |
| By: | Garcia, Filomena; Marques, Rafael; Opromolla, Luca David; Vezzulli, Andrea |
| Abstract: | The administration of tax policy has shifted its focus from enforcement to complementary instruments aimed at creating a social norm of tax compliance. In this paper we provide an analysis of the effects of the dissemination of information regarding the past degree of tax evasion at the social level on the current individual tax compliance behavior. We build an experiment where, for given levels of audit probabilities, fines and tax rates, subjects have to declare their income after receiving either a communication of the official average tax evasion rate or a private message from a group of randomly matched peers about their tax behavior. We use the experimental data to estimate a dynamic econometric model of tax evasion. The econometric model extends the Allingham-Sandmo-Yitzhaki tax evasion model to include self-consistency and endogenous social interactions among taxpayers. We find four main results. First, tax compliance is very persistent. Second, the higher the official past tax evasion rate the higher the degree of persistence: evaders are more likely to evade again, and compliant individuals are more likely to comply again. Third, when all peers communicate to have evaded (complied) in the past, both evaders and compliant individuals are more likely to evade (comply). Fourth, while both treatments, and especially the unofficial information treatment, are associated, in the context of our experiment, with a significantly larger growth in evasion intensity, the aggregate effect depends on the characteristics of the population. In countries with inherently low levels of tax evasion, official information can have beneficial effects by consolidating the behavior of compliant individuals. However, in countries with inherently high levels of tax evasion, official information can have detrimental effects by intensifying the behavior of evaders. In both cases, the impact of official information is magnified in the presence of strong peer effects. |
| Keywords: | Experiment; Information; peer effects; tax evasion; Tax morale |
| JEL: | C24 C92 D63 H26 Z13 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12886&r=iue |
| By: | Mascagni, Giulia |
| Abstract: | Tax experiments have been gaining momentum in recent years, although this literature dates back several decades.With new developments in methods and data availability, tax experiments have gradually moved away from lab settings and towards the ï¬ eld. This movement from the lab to the ï¬ eld has happened against the background of the ‘credibility revolution’ in applied economics, which has seen more rigorous methods applied to policy relevant questions, and of the availability to researchers of administrative data from tax returns. These developments have allowed signiï¬ cant advances in the experimental literature on tax compliance. This paper reviews this literature, giving particular attention to ï¬ eld experiments using administrative data, but putting them in the broader context of the compliance literature. A particular effort is made to take a global perspective, in a literature that is only recently seeing the emergence of evidence from Africa, Latin America and Asia. |
| Keywords: | Governance, |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:idq:ictduk:13726&r=iue |
| By: | Mascagni, Giulia; Santoro, Fabrizio |
| Abstract: | This paper reviews existing initiatives on taxpayer education in Africa, an area that has been largely under-researched in the literature. We start by providing an overview of the wide variety of programmes that African revenue authorities have undertaken in this area, including both traditional training and more innovative approaches. We then ask how effective these programmes are, and what can be done to improve them in the future. We argue that more evaluation is needed in this area. We also highlight the importance of complementing technical training with broader educational content on the importance of paying taxes, fiscal exchange and transparency. |
| Keywords: | Governance, |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:idq:ictduk:13704&r=iue |
| By: | McKay Andy; Pirttilä Jukka; Schimanski Caroline (Faculty of Management, University of Tampere) |
| Abstract: | A key policy problem in most developing countries is the size of the informal sector and its persistence over time. At the same time, these countries also need to increase their tax take. However, this may slow down the formalization of the economy. Evidence on the wages and characteristics of jobs in different sectors and on the impact of tax changes on the size of the informal sector in developing countries is, however, very limited. This paper therefore estimates the tax responsiveness of the extensive margin of formality, i.e. the propensity to participate in formal work as opposed to working as an informal worker,for four Sub-Saharan African countries. Using repeated cross-sections of household data and applying grouping estimator techniques, this paper finds only very small or statistically insignificant effects of taxes on the extent of formal work. |
| Keywords: | developing countries, Sub-Saharan Africa, taxation, labour supply, informality |
| JEL: | H31 J20 O17 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:tam:wpaper:1820&r=iue |
| By: | Dustin Voss |
| Abstract: | Many advanced economies around the world have recently witnessed a notable rise in populism stirring severe political unrest and social instability. This paper addresses the apparent academic confusion regarding the origins of this phenomenon and combines politico-economic analysis with electoral data to derive a new theory of populist demand. I conceptualise populism as a problem of political alienation stemming from the incapacity of social democratic parties to comprehensively represent the working class in the context of increased labour market dualisation. If the group of underrepresented workers is not sufficiently numerous to be electorally-relevant, right-wing populist protest parties can make use of the representational vacuum by reframing class-distributional issues along cultural conflict lines. If, however, the group of marginalised workers is large enough to mobilise political attention, left-wing populist parties will address socio-economic issues more directly. I thus assume an inverted hyperbolic causal relationship between labour market segmentation and the demand for populism. This hypothesis is tested in a critical case study on the electoral effects of labour market reforms in Germany and Spain. |
| Keywords: | populism, right-wing parties, dualisation, labour market reform, political representation |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:eiq:eileqs:132&r=iue |