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

  1. Why must it always be so Real with Tax Evasion? By Rangan Gupta; Philton Makena
  2. Forensics, Elasticities and Benford's Law By Banu Demir Pakel; Beata Smarzynska Javorcik
  3. Can Facebook Ads and Email Messages Increase Fiscal Capacity? Experimental Evidence from Venezuela By Gallego, J.A.; Federico Ortega
  4. Male-Female wage gap and informal employment in Bangladesh: A quantile regression approach By Rahman, Mustafizur; Al-Hasan, Md.
  5. Health insurance and self-employment transitions in Vietnam: A multinomial analysis By Le, Nga; Groot, Wim; Tomini, Sonila; Tomini, Florian

  1. By: Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa); Philton Makena (Department of Economics, University of Pretoria, Pretoria, South Africa)
    Abstract: We provide an alternative theoretical explanation to the tax evasion-inflation relationship by endogenizing the discount factor in a standard overlapping generations endowment economy. When the discount factor is a positive function of non-productive public expenditure, then inflation is bound to increase seigniorage, leading to an increase in public expenditure. In consequence, old age consumption increases in importance such that tax evasion among young-age agents increases to enhance the interest income from savings.
    Date: 2018–11
  2. By: Banu Demir Pakel; Beata Smarzynska Javorcik
    Abstract: Estimates of the trade elasticity based on actual trade policy changes are scarce, and the few that exist are all over the place. This paper offers a setting where an exogenous increase in a border tax can be used to estimate the trade elasticity. It shows theoretically and empirically that if evasion of border taxes is not taken into account, the trade elasticity is estimated with a large downward bias, leading to miscalculation of gains from trade. The paper also contributes to the literature by proposing two new methods of detecting evasion of border taxes.
    Keywords: trade elasticity, tax evasion, trade financing, border taxes, Benford's law
    JEL: F10
    Date: 2018
  3. By: Gallego, J.A.; Federico Ortega
    Abstract: Tax compliance is an important challenge in weakly institutionalized countries, in which citizens do not trust the State and prefer to evade taxation. However, e-government strategies may improve fiscal capacity, as the transaction costs of compliance are reduced and more information from taxpayers is gathered and exploited. Can compliance be increased, and hence fiscal capacity strengthened, using online communication strategies that exploit these tools and sources of information? We perform a randomized field experiment in the capital of Venezuela, Caracas, to determine if online strategies, namely email reminders and targeted Facebook advertisements, can increase tax compliance. We vary the mechanism used to approach taxpayers to test if more direct and personalized methods, such as email messages, are more effective than general advertisement tools, such as Facebook ads. Moreover, our design allows us to test potential complementarities between these strategies thus boosting the capacity of the local government to increase compliance. We find that these strategies are cost-effective methods for increasing tax revenues, but that the effects vary across different types of taxpayers.
    Keywords: Tax compliance, Randomized controlled trial, Fiscal capacity, Online strategies
    JEL: C93 H26 H71 O12
    Date: 2018–11–21
  4. By: Rahman, Mustafizur; Al-Hasan, Md.
    Abstract: This article undertakes an examination of Bangladesh’s latest available Quarterly Labour Force Survey 2015-2016 data to draw indepth insights as regards gender wage gap and wage discrimination in Bangladesh labour market. Mean wage decomposition shows that an average woman in Bangladesh earns 12.2 per cent lower wage than man, and about half of the wage gap can be explained by labour market discrimination against women. Quantile Counterfactual Decomposition shows that women are subjected to higher wage penalty at the lower deciles of the wage distribution with the wage gap varying between 8.3 per cent to 19.4 per cent at different deciles. We established that at lower deciles a significant part of the gender wage gap is on account of the relatively larger presence of informal employment. Conditional quantile estimates further reveals that formally employed female workers earn higher wage than their male counterparts at the first decile but suffer from wage penalty at the top deciles.
    Keywords: Gender wage gap, Oaxaca-Blinder Decomposition, Quantile Decomposition, Informal Employment, Quantile Regression
    JEL: C21 J31 J70
    Date: 2018–04
  5. By: Le, Nga (UNU-MERIT); Groot, Wim (UNU-MERIT and CAPHRI, Maastricht University,); Tomini, Sonila (UNU-MERIT); Tomini, Florian (Institute of Epidemiology and Health Care, UCL Medical School)
    Abstract: Health insurance can have important effects on self-employment and self- employment transitions. However, there is a literature gap on the relationship between health insurance and self-employment in low and middle income countries, especially in the context of the rapid expansion of health insurance in these countries. This paper examines this relationship in Vietnam with a focus on the comparison between the voluntary scheme for the informal sector (mostly self-employed workers) and the compulsory insurance for the formal sector (mostly wage workers). We employ a Multinomial Logit Model on a panel from the Vietnamese Household Living Standards Surveys 2010-2014 to investigate the association between health insurance and self-employment entry and exit over time. We show that those with compulsory health insurance in Vietnam, the formal workers, do not have the incentive to start a business compared to those having voluntary insurance. This effect holds true over time in 2012 and 2014. The effect is partly explained by the better enforcement of the compulsory health insurance scheme in Vietnam, making staying out of self-employment (often informal self-employment) a preferred choice. Regarding the effect of health insurance on self- employment exit, we do not find any conclusive evidence on this matter. The rigidity of the economy is highlighted, suggesting important policy implications in the areas of health and labour policies in Vietnam.
    Keywords: health insurance, self-employment, Vietnam, self-employment entry, self-employment exit
    JEL: I13 J22 O15
    Date: 2018–11–05

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