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on Informal and Underground Economics |
| By: | David Masclet (Univ Rennes, CNRS, CREM - UMR 6211, F-35000 Rennes, France and CIRANO); Claude Montmarquette (Centre interuniversitaire de recherche en analyse des organisations (CIRANO), Montréal, Québec (Canada)); Nathalie Viennot-Briot (Centre interuniversitaire de recherche en analyse des organisations (CIRANO), Montréal, Québec (Canada)) |
| Abstract: | There are many ways of tackling tax evasion. The traditional strategies implemented by tax authorities fight fiscal fraud through audit and penalties. However, there also exist a plethora of unconventional methods, such as whistleblower programs. Although there is a rich economic literature on tax evasion, auditing and penalties, tax agencies’ heavy reliance on whistleblower programs has mostly been ignored. We ran an experiment in which taxpayers can punish tax evaders by reporting them to the authorities, even though it is costly for them to do so and despite the lack of any material benefit from doing so. Information on other taxpayers' compliance rates together with the opportunity to report tax evaders has a positive and a very significant effect on the level of income reported. Observing the compliance rates of other participants alone does not suffice to increase tax revenues, while the mere threat of being reported significantly increases revenues. |
| Keywords: | fiscal fraud, whistleblowers, ambiguous risk, laboratory experiment |
| JEL: | H26 H31 C91 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:tut:cremwp:2018-11&r=all |
| By: | Marie Bjørneby; Annette Alstadsæter; Kjetil Telle |
| Abstract: | Third-party reporting and employers’ tax withholding are powerful compliance mechanisms, as long as the employer and employee do not collude to evade. Using data from randomly assigned on-site audits among 2,462 Norwegian firms, we provide evidence of collusive tax evasion. We find that firms assigned to be audited increased their subsequent wage reporting on behalf of their employees by 18 percent relative to firms assigned to the control group. The effect is more pronounced among small firms with few employees. Our results document the limitations of third-party reporting, but also that these limitations can be counteracted by relatively inexpensive on-site audits. |
| Keywords: | collaborative tax evasion, collusive tax evasion, random audits, undeclared work, third-party reporting |
| JEL: | E26 H26 H32 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7381&r=all |
| By: | Takeo Hori (Department of Industrial Engineering and Economics, Tokyo Institute of Technology); Noritaka Maebayashi (Faculty of Economics and Business Aminstration, The University of Kitakyushu); Keiichi Morimoto (Department of Economics, Meisei University) |
| Abstract: | We explore how tax evasion by firms affects the growth- and welfare-maximizing rates of corporate income tax (CIT) in an endogenous growth model with productive public service. We show that the negative effect of CIT on growth is mitigated in the presence of tax evasion. This increases the benefit of raising the CIT rate for public service provision. Thus, in contrast to Barro (1990), the optimal tax rate is higher than the output elasticity of public service. Through numerical exercises, we demonstrate that the role of tax evasion by firms is quantitatively significant. |
| Keywords: | corporate income tax, tax evasion, growth, welfare |
| JEL: | H21 H26 O40 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:mei:wpaper:41&r=all |
| By: | Elena Korchmina (New York University Abu Dhabi) |
| Abstract: | How can developing countries successfully implement income taxes, which are generally desirable but costly to collect? This paper analyses the income tax compliance of elites in a developing country with a low administrative capacity, drawing attention to the role of either voluntary or quasi-voluntary components of tax acquiescence. In 1812, the Russian government introduced the progressive income tax, with the highest tax rate of 10 per cent. After Britain, the Russian Empire became the second country to adopt this levy – under the threat of Napoleonic invasion. Unlike the widely known and deeply investigated British case, the history of Russian income tax suffers from a lack of detailed research. I use a self-compiled unique dataset for estimating the level of tax compliance of the Russian noble elite at the individual level. The dataset is based on the self-reported tax returns of approximately 4,000 Russian aristocrats who had real estate in the Moscow region. Using narrative sources and crosschecking with official bank documents, I reveal not only that the Russian nobility declared reliable income information but also that the share of aristocratic evaders was relatively low (from 30 to 10 per cent). I argue that this surprisingly high level of tax compliance was achieved through a unique mechanism of tax collection involving the channels of social sanctioning and group identity, boosted by the national threat of Napoleonic invasion. This case could be considered as extremely important, insofar as the state could not achieve its fiscal aims due to coercive tools in the hands of bureaucracy but had to rely on subjects’ goodwill. |
| Keywords: | Russia, income tax, elite, nineteenth-century. |
| JEL: | H2 N93 N33 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:hes:wpaper:0144&r=all |
| By: | James O’Donovan; Hannes F. Wagner; Stefan Zeume |
| Abstract: | We exploit one of the largest data leaks to date to study whether and how firms use secret offshore vehicles. From the leaked data, we identify 338 listed firms as users of secret offshore vehicles and document that these vehicles are used to finance corruption, avoid taxes, and expropriate shareholders. Overall, the leak erased $174 billion in market capitalization among implicated firms. Following the increased transparency brought about by the leak, implicated firms experience lower sales from perceptively corrupt countries and avoid less tax. We estimate conservatively that one in seven firms have offshore secrets. JEL Classification: G32, G38, H25, H26 Keywords: Panama Papers, tax haven, offshore, corruption, tax evasion, expropriation, corporate misbehavior, Paradise Papers. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:igi:igierp:634&r=all |
| By: | Michael Clemens (Center for Global Development); Cindy Huang (Center for Global Development); Jimmy Graham (Center for Global Development) |
| Abstract: | There are over 25 million refugees in the world today and most of them—especially those in developing countries—do not have formal labor market access (LMA). That is, they do not have the right to work or own businesses. In this paper, we argue that granting refugees formal LMA has the potential to create substantial benefits for refugees and their hosts, including reduced vulnerability and higher incomes for refugees, improved labor market outcomes and higher incomes for natives, and positive fiscal effects for the host governments. Overall, even short of formal LMA according to our definition—wherein refugees’ access to the labor market is unrestricted by the government in law and in practice—greater rights around work and business ownership enable greater benefits. Moreover, the fewer barriers there are to realizing these rights in practice—whether related to government policy or otherwise—the greater the benefits. But there may also be costs associated with granting formal LMA for certain groups in the host population and the full range of benefits is not guaranteed. The existence and magnitude of these benefits and costs is determined by key contextual factors, including the current extent of informal LMA for refugees, characteristics of the labor market, the skill and demographic profiles of refugees, the geographic location and concentration of refugees, and, crucially, policy choices and the political context. By creating and implementing policies that support vulnerable people regardless of status, help natives adjust to and benefit from changes, facilitate refugee labor market integration, and grant refugees the complementary rights that will help them succeed (such as freedom of movement), policymakers can amplify the benefits of formalization and mitigate the costs—making formal LMA a critical lever for generating positive outcomes from the presence of refugees. |
| Keywords: | refugees, benefits, formalization, labor market access, work rights, freedom of movement, impact, labor, wages, employment, fiscal effects, productivity, CRRF, Global Compact |
| JEL: | J08 J24 J31 J61 O23 |
| Date: | 2018–10–09 |
| URL: | http://d.repec.org/n?u=RePEc:cgd:wpaper:496&r=all |
| By: | Ege Aksu (The Graduate Center, CUNY, Economics); Refik Erzan (Department of Economics, Bogazici University); Murat Guray Kirdar (Department of Economics, Bogazici University) |
| Abstract: | We estimate the effects of the arrival of 2.5 million Syrian migrants in Turkey by the end of 2015 on the labor market outcomes of natives, using a difference-in-differences IV methodology. We show that relaxing the common-trend assumption of this methodology -unlike recent papers in the same setting- makes a substantial difference in several key outcomes. Despite the massive size of the migrant influx, no adverse effects on the average wages of men or women or on total employment of men are observed. For women, however, total employment falls -which results mainly from the elimination of part-time jobs. While the migrant influx has adverse effects on competing native workers in the informal sector, it has favorable effects on complementary workers in the formal sector. We estimate about one-to-one replacement in employment for native men in the informal sector, whereas both wage employment and wages of men in the formal sector increase. Our findings, including those on the heterogeneity of effects by age and education, are consistent with the implications of the canonical migration model. In addition, increases in prices in the product market and in capital flow to the treatment regions contribute to the rise in labor demand in the formal sector. |
| Keywords: | Labor Force and Employment; Wages; Immigrant Workers; Formal and Informal Sectors; Syrian Refugees; Turkey; Difference-in-differences; Instrumental Variables. |
| JEL: | J21 J31 J61 C26 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:1815&r=all |
| By: | Klyachko, Tatiana (Клячко, Татьяна) (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Avraamova, Elena (Авраамова, Елена) (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Loginov, Dmitriy (Логинов, Дмитрий) (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Polushkina, Elena (Полушкина, Елена) (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Semionova, Elena (Семионова, Елена) (Russian Presidential Academy of National Economy and Public Administration (RANEPA)) |
| Abstract: | Every year the Center of the Economics for Continuing Education of the Institute of Applied Economic Research of the Russian Presidential Academy of National Economy and Public administration monitors the youth labor market problems. This article uses fieldwork collected in the three regions of the Russian Federation in 2017 to explore youth informal employment. The aim of the investigation was a study of the reasons and the consequences of youth informal job. |
| Keywords: | Monitoring, youth employment, informal job |
| JEL: | J62 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:rnp:ppaper:101801&r=all |