nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2019‒02‒25
ten papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Taxation and Self-Employment By Zsofia Barany
  2. The Slippery Slope Framework: Extending the Analysis by Investigating Factors Affecting Trust and Power By Mardhiah Mardhiah; Riyana Miranti; Robert Tanton
  3. Nudging businesses to pay their taxes By Sinning, Mathias; Fels, Katja M.
  4. Dual Labour Markets Revisited By Bentolila, Samuel; Dolado, Juan J.; Jimeno, Juan F.
  5. A taxonomy of ColombiaÂ’s informal labor market By Fernández, C.; Villar, L.; Sandesh Taran Kaur, Martha Hernández
  6. The impact of lowering the payroll tax on informality in Colombia By Fernández, C.; Villar, L.
  7. What Aspects of Formality Do Workers Value? Evidence from a Choice Experiment in Bangladesh By Mahmud, Minhaj; Gutierrez, Italo A.; Kumar, Krishna B.; Nataraj, Shanthi
  8. Canadian Legalization of Cannabis reduces both its cash usage and 'Black' Economy By Ashworth, Jonathan; Goodhart, Charles A
  9. Tax administration and compliance: evidence from medieval Paris By Slivinski, Al; Sussman, Nathan
  10. Société offshore, paradis fiscaux, les nouveaux refuges de l'argent sale By Jacques Fontanel

  1. By: Zsofia Barany (Département d'économie)
    Abstract: In this paper I study the relation between self-employment and the tax rates on wages and on self-employment income. Using variation in the statutory tax rates across countries, industries, and occupations, I find that while the share of self-employed is strongly positively correlated with the tax rate on wage income, it is weakly negatively correlated with the tax rate on self-employed income. The asymmetry between the effects of the tax rates suggests that those who choose self-employment partly do so in order to evade taxes. This extensive margin of adjustment – between employment and self-employment – should be taken into account when considering the effects of tax rates on labor income, on taxable income and on welfare.
    Keywords: Tax-rates; Self-employment; Tax evasion
    Date: 2018–05
  2. By: Mardhiah Mardhiah; Riyana Miranti; Robert Tanton
    Abstract: Many empirical studies have been conducted to test the Slippery Slope Framework (SSF) assumptions. Yet, only a few studies focus their attention on tax compliance factors associated with trust and power. Therefore, this study is dedicated to fully exploring these factors. The results show that most factors had a significant influence on trust and power. The results also confirm that trust leads to voluntary compliance and voluntary compliance in turn positively affects overall tax compliance. However, the study fails to find evidence of the relationship of power with enforced compliance, although enforced compliance is found to negatively affect overall tax compliance.
    Keywords: trust, power, tax compliance, voluntary compliance, enforced compliance
    JEL: H26
    Date: 2019
  3. By: Sinning, Mathias; Fels, Katja M.
    Abstract: Tax noncompliance harms both social cohesion and public welfare. In the US alone, tax underpayment averaged $39 billion per year from 2008 to 2010. How can tax authorities collect outstanding payments more efficiently? Novel research by RWI in cooperation with the Australian National University provides new insights: based on three natural field experiments, the researchers show that a simplified language and reminders increase tax compliance by corporate taxpayers. Early reminders are especially attractive from a tax collector's perspective.
    Date: 2019
  4. By: Bentolila, Samuel (CEMFI, Madrid); Dolado, Juan J. (European University Institute); Jimeno, Juan F. (Bank of Spain)
    Abstract: This paper provides an overview of recent research on dual labour markets. Theoretical and empirical contributions on the labour-market effects of dual employment protection legislation are revisited, as well as factors behind its resilience and policies geared towards correcting its negative economic and social consequences. The topics covered include the stepping-stone or dead-end nature of temporary contracts, their effects on employment, unemployment, churn, training, productivity growth, wages, and labour market inflows and outflows. The paper reviews both theoretical advances and relevant policy discussions on a very relevant topic in many European countries, in particular in several that had a very poor employment performance during the recent global economic and financial crisis.
    Keywords: dual labour markets, employment protection, temporary contracts, job creation, job destruction, churn
    JEL: J41
    Date: 2019–01
  5. By: Fernández, C.; Villar, L.; Sandesh Taran Kaur, Martha Hernández
    Abstract: A taxonomy of the informal labor market is extremely important to understand and handle informality, particularly in a country as Colombia where this phenomenon is large and heterogeneous. As we will argue in this paper, it is possible to identify four different types of informality, according to the reasons to be informal: low productivity of the worker (subsistence informality), barriers to formality (induced informality), choice (voluntary informality) and both choice and low productivity (mixed informality). The policy recommendations to handle informality varies according to the target type of informality. While induced informality might be reduced by the removal of formal employment barriers or by the implementation of active policies to reduce segregation in society, structural informality requires other kinds of policies, such as a focus on improving educational outcomes. Similarly, in the case of voluntary informality, providing economic incentives to formalize and controlling informality might be more effective, whereas mixed informality is more related to wrong incentives created by social benefits. In this paper we propose a methodology to identify the four types of informality to the case of Colombia that follows what we did in Fernandez et al. (2016) but with greater emphasis on the education level. Although the correspondence is far from perfect, we show that in general terms, informal workers with primary education or less can be classified in the Subsistence informality group, informal workers with secondary education can be included in the Induced informality group, informal workers with tertiary education or more can be treated as Voluntary informal workers and informal workers with middle school education can cover mixed informality. Hence, the policy recommendations to handle informality among each education group are different.
    Keywords: Desempleo, Economía, Investigación socioeconómica, Productividad,
    Date: 2018
  6. By: Fernández, C.; Villar, L.
    Abstract: The Colombian government recently reformed the tax law by reducing payroll contributions from 29.5% to 16% and substituting them with a profit tax. The law was passed in December 2012, and two years later the informality rate in the 13 main metropolitan areas diminished from 56% to 51% in December 2014 (using the legal definition of informality). In the whole survey the reduction was a little less pronounced, going from 68% to 64%. This period was also characterized by high, yet also diminishing growth rates; changes in the tax rates, and increasing real minimum wages. It is of the most interest to know how much of this reduction was due to the tax reform. This paper performs this task using a Matching and Difference in Differences methodology. According to the results, the tax reform reduced the informality rate, of the workers affected by the reform in the 13 main metropolitan areas, between 4,3 and 6,8 p.p. which translated in a reduction of the informality rate between 2,0 and 3,1 p.p. given that the treated population was only 45% of the working population of the country in 2012. The impact over the whole survey was between 4,1 and 6,7 which translates into 1,2 to 2,2 p.p. impact on the informality rate of the whole country. Similar results were found using the firm definition of informality. The reform affected mostly salaried workers and employers, males between 25 and 50 years old and workers with low levels of education.
    Keywords: Desempleo, Economía, Educación, Impuestos, Investigación socioeconómica,
    Date: 2018
  7. By: Mahmud, Minhaj (Bangladesh Institute of Development Studies (BIDS)); Gutierrez, Italo A. (RAND); Kumar, Krishna B. (RAND); Nataraj, Shanthi (RAND)
    Abstract: Using a choice experiment among 2,000 workers in Bangladesh, we to elicit willingness to pay (WTP) for specific job benefits typically associated with formal employment. We find that workers value job stability the most; the average worker would be willing to forego a 27 percent increase in monthly income in order to obtain a 1-year written contract (relative to no contract), or to forego a 12 percent increase to obtain thirty days of termination notice. On average, government workers place a higher value on contracts than do private sector employees, while casual workers particularly value higher pay. Our use of choice experiments to overcome the challenges associated with estimating WTP for specific job benefits from hedonic wage regressions or from observed job transitions is of interest in its own right, especially in a developing country context where data on worker transitions are unavailable and many workers are informally employed.
    Keywords: informality, worker benefits, discrete choice experiments
    JEL: J32 J81
    Date: 2019–01
  8. By: Ashworth, Jonathan; Goodhart, Charles A
    Abstract: The Canadian Government legalized Cannabis usage on October 17th, 2018. During the same month, primarily in the week before and after such legalization, the amount of cash in circulation fell quite materially, in contrast to the rises typically observed in previous years. A key driver is likely to have been Cannabis users switching from cash payments for illegal purchases to using standard recordable electronic payments for their purchases, which have now become legal. The legalization of Cannabis should ultimately reduce the size of the Underground economy by around 4 or 5 percent, with a much bigger decline likely in the black economy.
    Keywords: Black Economy; Canada; Cannabis; cash
    JEL: D12 E41 K40
    Date: 2019–01
  9. By: Slivinski, Al; Sussman, Nathan
    Abstract: We analyze the Parisian taille of the late 13th century - a taxation mechanism used to finance periodic major expenditures by the French Crown, including wars. Our major finding is that this system was remarkably successful along a number of dimensions, in an environment without the administrative structures used by contemporary governments. The taille's essential features were; an agreement between the king and city government to collect a fixed amount of revenue, and a collection process that made use of information about taxpayers held by their fellow artisans and/or neighbors. We show that it collected considerable sums without social unrest, with high levels of compliance, and administrative costs that were low even by modern standards. We also argue that its success may have lessons for improved tax collection and compliance in contemporary less-developed economies.
    Keywords: compliance; evasion; Fairness; institutions; middle ages; Paris; taxation
    JEL: H2 H21 H26 N13 N43
    Date: 2019–02
  10. By: Jacques Fontanel (CESICE - Centre d'études sur la sécurité internationale et les coopérations européennes - UPMF - Université Pierre Mendès France - Grenoble 2 - UGA - Université Grenoble Alpes)
    Abstract: Les sociétés offshore et les paradis fiscaux constituent des menaces certaines pour les finances publiques des Etats et dans la lutte contre la criminalité. Les pays en développement pâtissent particulièrement de l'évasion et de l'optimisation fiscales. Offshore companies and tax havens threat public finances of states and the fight against crime, corruption and dirty money. Developing countries suffer from tax evasion and optimization, and corruption.
    Keywords: tax evasion,corruption,offshore company,tax haven,State finance
    Date: 2017–06

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