nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2019‒03‒25
six papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Taxation and Self-Employment By Zsofia Barany
  2. The Political Economy of the Taxation of Individuals in North Cyprus By Amin Sokhanvar; Glenn P. Jenkins; Hasan Ulas Altiok
  3. Understanding "Wage Theft": Evasion and Avoidance Responses to Minimum Wage Increases By Clemens, Jeffrey; Strain, Michael R.
  4. Shadow activity in the economy: a modified approach to the construction of sectoral assessments By Abroskin, Alexander (Аброскин, Александр); Abroskina, Natalia (Аброскина, Наталья)
  5. Socio-environmental practices of the informal economy of rural households in Russia and the post-socialist countries By Nikulin, Alexander (Никулин, Александр); Vinogradskiy, Valeriy (Виноградский, Валерий); Vinogradskaya, Olga (Виноградская, Ольга); Gusakov, Timur (Гусаков, Тимур); Trotsuk, Irina (Троцук, Ирина)
  6. The effects of institutional quality on formal and informal borrowing across high-, middle-, and low-income countries By Lan Chu Khanh

  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: Amin Sokhanvar (Department of Economics, Eastern Mediterranean University, North Cyprus); Glenn P. Jenkins (Department of Economics, Queen's University, Kingston, Canada and Eastern Mediterranean University, North Cyprus); Hasan Ulas Altiok (Department of Banking and Finance,Eastern Mediterranean University, North Cyprus)
    Abstract: The objective of this study is to undertake a diagnostic of the personal direct tax system and the charges that are levied for the funding of the social security and the provident fund in North Cyprus. This analysis was conducted using a data base that included 100% of the individual tax payers. Particular attention was given to the assessment of the marginal tax rates on labor income and how they might affect fiscal compliance. It was found that the design of the tax system and its interaction with the systems of social security and provident fund contributions have created a powerful set of incentives for non-compliance. Top income earning employees in the private sector face a very high combined marginal fiscal burden. As a consequence, massive tax avoidance takes place so that most private employees pay no marginal income tax, social security or provident fund contributions on income above the minimum wage. In addition, the private self-employed allocate their wage incomes so as to minimize the total burden of social security, provident fund contributions plus individual and corporate income tax payments of their businesses. These very high marginal rates at levels of income that are low (by developed country standards) have created informal administrative measures to alleviate the fiscal burden on individuals. The end result however, is neither equitable nor economically neutral.
    Keywords: Pensions funds, personal income tax, tax incidence, tax compliance, fiscal equity
    JEL: H24 H26
    Date: 2019–01
  3. By: Clemens, Jeffrey (University of California, San Diego); Strain, Michael R. (American Enterprise Institute for Public Policy Research)
    Abstract: A holistic assessment of the labor market effects of minimum wage regulation requires understanding employer compliance. The economics literature has paid little attention to this issue. We investigate how minimum wage increases and the strength of enforcement regimes affect the prevalence of subminimum wage payments. We find strong evidence that higher minimum wages lead to a greater prevalence of subminimum wage payments. We consistently estimate that increases in measured underpayment following minimum wage increases average between 10 and 25 percent of realized wage gains. We interpret this as evidence that minimum wage evasion and avoidance are an important reality in the low-wage labor market. Finally, we find that enforcement regimes play an important role in shaping both baseline compliance rates and the response of compliance to increases in minimum wages.
    Keywords: minimum wage, subminimum wage, compliance, noncompliance, enforcement
    JEL: J08 J38 K42
    Date: 2019–02
  4. By: Abroskin, Alexander (Аброскин, Александр) (The Russian Presidential Academy of National Economy and Public Administration); Abroskina, Natalia (Аброскина, Наталья) (The Russian Presidential Academy of National Economy and Public Administration)
    Abstract: The problems of methodology and methods of shadow activity scales measurement in the sectors of the Russian economy are the subject area of the research. Special approach to the construction of estimates for the scales of shadow activity in industries of the Russian economy, based on the modification of the classical method of physical inputs, is proposed. The algorithm of calculations and the description of information base used in the construction of sectorial indicators of the shadow activity scales dynamics in the Russian Federation are presented. Absolute estimates and structural indicators of shadow activity scales in gross value added were developed for selected industries of the production of goods and services; corrected estimates of gross value added and GDP of the Russian Federation for 2017 taking into account the updated industry estimates of the shadow activity scales are presented.
    Date: 2019–03
  5. By: Nikulin, Alexander (Никулин, Александр) (The Russian Presidential Academy of National Economy and Public Administration); Vinogradskiy, Valeriy (Виноградский, Валерий) (The Russian Presidential Academy of National Economy and Public Administration); Vinogradskaya, Olga (Виноградская, Ольга) (The Russian Presidential Academy of National Economy and Public Administration); Gusakov, Timur (Гусаков, Тимур) (The Russian Presidential Academy of National Economy and Public Administration); Trotsuk, Irina (Троцук, Ирина) (The Russian Presidential Academy of National Economy and Public Administration)
    Abstract: Today environmental issues are in the focus not only of scientific and managerial but also of everyday interest of townspeople and villagers, and such concerns are increasingly about the countryside for it lost its previous “status” of ecological “enclave” due to the growing number and severity of environmental crisis situations in rural areas. However, we do not consider these crisis situations as such but rather the consequences of the deformation of the previous ecological balance between peasant households and their environment, and we study the daily efforts of rural residents within their informal economy to restore the traditional ecological state of the village or, at least, to prevent it deterioration. Based on statistical, historical and empirical data, we consider the types of practices that determine the formats of sustainable local and regional agronomic and social-economic interaction of social agents in rural areas.
    Date: 2019–03
  6. By: Lan Chu Khanh
    Abstract: This paper examines the effects of institutional quality on financing choice of individual using a large dataset of 137,160 people from 131 countries. We classify borrowing activities into three categories, including formal, constructive informal, and underground borrowing. Although the result shows that better institutions aids the uses of formal borrowing, the impact of institutions on constructive informal and underground borrowing among three country sub-groups differs. Higher institutional quality improves constructive informal borrowing in middle-income countries but reduces the use of underground borrowing in high- and low-income countries.
    Date: 2019–03

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