nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2018‒11‒05
two papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Audit State Dependent Taxpayer Compliance: Theory and Evidence from Colombia By James Alm; James C. Cox; Vjollca Sadiraj
  2. Informal Employment Dynamics in Paraguay By Pablo Adrian Garlati Bertoldi

  1. By: James Alm; James C. Cox; Vjollca Sadiraj
    Abstract: Colombian tax reforms have been enacted with no estimates of taxpayer compliance responses to policy innovations. We report the results from the first tax compliance experiment run in Colombia. Our data analysis follows from an original dynamic theoretical model of individual compliance choice that is fully consistent with our experimental design and that should have useful applications to other tax compliance experiments. The model distinguishes between compliance conditional on no previous audits and compliance conditional on previous audits one and two periods earlier, which allows us to discriminate between the implications of naïve and static behavior versus sophisticated and forward-looking behavior in our subsequent empirical analysis. Our estimation results indicate that taxpayer reporting increases with an increase in the audit rate and an increase in the fine rate; we find no significant effects of the tax rate on compliance. We also find that compliance depends upon the use of tax payments; that is, taxpayer reporting is greater when aggregate tax payments are donated to a charity.
    Keywords: Tax evasion, experimental economics
    JEL: H26 C91
    Date: 2018–10
  2. By: Pablo Adrian Garlati Bertoldi
    Abstract: I characterize informal-formal employment transitions in Paraguay. Results indicate that some factors, such as education and firms size, improve workers' movement between informal and formal employment, and wage gains from moving into formality are modest. Workers who tend to stay indenitely informal are more likely to become unemployed or inactive. Estimates, based on a survival model, indicate that education and firm size highly increase informal-to-formal transitions, especially if workers have stayed informal for a long time. Older women have lower formal-to-informal transitions and, surprisingly, education plays no significant role. Mincer estimates point to high wages for formal workers, compared with informal, but that individual workers' wage gains from moving into formality are small.
    Keywords: informality, labor market dynamics, survival analysis, Paraguay
    JEL: C41 E26
    Date: 2018–10–09

This nep-iue issue is ©2018 by Catalina Granda Carvajal. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.