nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2018‒08‒13
seven papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Cash in Circulation and the Shadow Economy: An Empirical Investigation for Euro Area Countries and Beyond By Franz Seitz; Hans-Eggert Reimers; Friedrich Schneider
  2. Tax Morale and the Role of Social Norms and Reciprocity. Evidence from a Randomized Survey Experiment By Philipp Dörrenberg; Andreas Peichl
  3. Fiscal Fraud- A Difficult Reality to Quantify By Istrate, Florentina
  4. Nudging businesses to pay their taxes: Does timing matter? By Gillitzer, Christian; Sinning, Mathias
  5. Willing to share? Tax compliance and gender in Europe and America By D’Attoma, John; Volintiru, Clara; Steinmo, Sven
  6. Loss Aversion, Transaction Costs, or Audit Trigger? Learning about Corporate Tax Compliance from a Policy Experiment with Withholding Regime By Carrillo, Paul; Emran, M. Shahe
  7. Misreported Trade By Mohammad Farhad; Michael Jetter; Abu Siddique; Andrew Williams

  1. By: Franz Seitz; Hans-Eggert Reimers; Friedrich Schneider
    Abstract: We analyze the net issues of the national euro area central banks in relation to the dynamics of the shadow economy within a panel cointegration framework. Besides the total net issues, we distinguish between large, medium and small euro banknotes and take due account of other determinants of cash demand. We find a significant and positive relationship between the net issues and the size of the shadow economy only for medium notes. And this result seems to be driven by the smaller euro area countries. The use of large and small denominations is obviously not driven by the shadow economy. For comparison purposes, we also present panel results for eight non-euro area countries (Australia, Canada, Japan, Norway, Sweden, Switzerland, UK, US). For these countries, we are not able to establish an economically meaningful and statistically significant cash demand equation including the shadow economy.
    Keywords: banknotes, net issues, shadow economy, cash demand function, panel cointegration
    JEL: C23 E41 E58
    Date: 2018
  2. By: Philipp Dörrenberg; Andreas Peichl
    Abstract: We present the first randomized survey experiment in the context of tax compliance to assess the role of social norms and reciprocity for intrinsic tax morale. We find that participants in a social-norm treatment have lower tax morale relative to a control group while participants in a reciprocity treatment have significantly higher tax morale than those in the social-norm group. This suggests that a potential backfire effect of social norms is outweighed if the consequences of violating the social norm are made salient. We further document the anatomy of intrinsic motivations for tax compliance and present first evidence that previously found gender effects in tax morale are not driven by differences in risk preferences.
    Keywords: tax compliance, tax evasion, intrinsic motivations, tax morale, social norms, reciprocity
    JEL: H20 H32 H50 C93
    Date: 2018
  3. By: Istrate, Florentina
    Abstract: The specialized economic literature contains numerous reference works in the field of taxation, but those dedicated exclusively to tax evasion are not very numerous. Due to the increasing necessity of the decryption of this phenomenon, given the ingenuity of its manifestations, , I consider it a good opportunity to comment it in the light of the distortions it induces upon the functioning of the competitive market economy circuit. From this perspective, efficient combating of the phenomenon must be a priority both at the level of the national governmental authorities and at the level of the international bodies charged with the detection and sanctioning of financial-tax frauds. As an economic and social phenomenon with the most ingenious manifestations, tax evasion has particularly damaging consequences both at the macroeconomic level and at the level of the individual.
    Keywords: tax evasion; creative accounting; fiscal fraud; corruption; economic; financial crime
    JEL: M1 M4
    Date: 2018–03
  4. By: Gillitzer, Christian; Sinning, Mathias
    Abstract: This paper provides theoretical and empirical evidence on the implications of the timing of reminders by studying the effect of varying the timing of reminder letters to taxpayers on their payment behavior. The collection of unpaid tax debts constitutes a considerable challenge for tax authorities. We show that varying the timing of a reminder letter has a theoretically ambiguous effect on tax payments. We study the payment behavior of business taxpayers in a field experiment in Australia and find that a simple reminder letter increases the probability of payment by about 25 percentage points relative to a control group that does not receive a letter from the tax authority. However, variation over a three-week period in the timing of the reminder letter has no effect on the probability of payment within seven weeks of the due date. Our findings indicate that sending reminders early results in faster payment of debts with no effect on the ultimate probability of payment.
    Keywords: tax compliance,business taxation,natural field experiment,behavioral insights
    JEL: C93 H25 H26
    Date: 2018
  5. By: D’Attoma, John; Volintiru, Clara; Steinmo, Sven
    Abstract: Studies examining the effects of gender on honesty, deceptive behavior, pro-sociality, and risk aversion, often find significant differences between men and women. The present study contributes to the debate by exploiting one of the largest tax compliance experiments to date in a highly controlled environment conducted in the United States, the United Kingdom, Sweden, and Italy. Our expectation was that the differences between men’s and women’s behavior would correlate broadly with the degree of gender equality in each country. Where social, political and cultural gender equality is greater we expected behavioral differences between men and women to be smaller. In contrast, our evidence reveals that women are significantly more compliant than men in all countries. Furthermore, these patterns are quite consistent across countries in our study. In other words, the difference between men’s and women’s behavior is not significantly different in more gender neutral countries than in more traditional societies.
    Keywords: Tax compliance; gender; comparative political economy; institutions
    JEL: J1
    Date: 2017–04–01
  6. By: Carrillo, Paul; Emran, M. Shahe
    Abstract: We analyze firm's tax choices facing a withholding and enforcement regime with a focus on three salient mechanisms of bunching: (i) transaction costs, (ii) withholding threshold as a reference point for taxpayer that creates a kink due to loss aversion, and (iii) withholding threshold as a reference point for audit (audit trigger model). The transaction costs model predicts that none of the firms that bunch at the withholding threshold would declare higher taxes when withholding rate is increased, as was the case in Ecuador in 2007. Evidence from a triple-difference research design shows the opposite. A prospect theoretic model with the power value function of Kahneman and Tversky (1979) does not generate bunching at the withholding threshold. While linear prospect theory (LPT) can generate bunching under certain conditions, it also yields testable predictions that are not consistent with the behavior of a significant proportion of firms. Under the LPT, given an enforcement and withholding regime, if a firm bunches in one year it should also bunch in all the following years, or if it unbunches in a following year, it should declare taxes less than the withheld amount. The evidence from panel data on the universe of all corporations in Ecuador shows very low persistence in bunching: conditional on bunching at least once, only 3-4 percent firms bunch every year before changes in the withholding rate, and among the firms that unbunch 35-40 percent declare taxes more than the withheld amount, thus contradicting the LPT model for a substantial proportion of the firms. Using the Sasabuchi t test as developed by Lind and Mehlum (2010), we find that the relation between probability of bunching and assets of a firm is inverted-U which is consistent with the audit trigger model. The evidence suggests that the behavior of the firms cannot be captured by a single model. The strength of enforcement is important in determining bunching in an LPT model which suggests cross-country differences in the role played by loss aversion in bunching of taxpayers at policy thresholds.
    Keywords: Loss Aversion, Reference Dependence, Transaction Costs, Audit Trigger, Bunching, Withholding, Firms, Profit Tax, Tax Evasion, Ecuador
    JEL: H2 H25 H26 O1
    Date: 2018–06–16
  7. By: Mohammad Farhad; Michael Jetter; Abu Siddique; Andrew Williams
    Abstract: This paper introduces a methodology to measure misreported trade in a consistent way across countries and over time. Our methodology does not require any assumptions about which countries may be more or less likely to misreport – rather, all indices are derived endogenously with available trade data. We derive seven specific indices related to overall misreporting, as well as over- and under-reporting of exports and imports. Applying this method to existing bilateral trade data on the HS 4-digit level from 1996-2015, we present several rankings and describe a few prominent cases, such as China. Overall, our indices can explain intuitive developments well and should help researchers to study countries’ trade misreporting in a global dimension that is comparable across countries and over time. We conclude the paper with an application, focusing on the role of tariff and VAT rates as predictors of import under-reporting. As predicted by economic theory, case studies, and economic intuition, we find positive correlations for both tariff and VAT rates with import under-reporting. These results are robust to the inclusion of potentially confounding factors, as well as country- and time-fixed effects.
    Keywords: international trade, trade misreporting, tariffs rates, VAT rates
    JEL: F13 F14 H26
    Date: 2018

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