nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2019‒04‒01
four papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Does credit-card information reporting improve small-business tax compliance? By Slemrod, Joel; Collins, Brett; Hoopes, Jeffrey L.; Reck, Daniel; Sebastiani, Michael
  2. Teach to Comply? Evidence from a Taxpayer Education Programme in Rwanda By Mascagni, Giulia; Santoro, Fabrizio; Mukama, Denis
  3. Expensive to be a Female Trader: The Reality of Taxation of Flea Market Traders in Zimbabwe By Ligomeka, Waziona
  4. Informal employment and work health risks: Evidence from Cambodia By Dike, Onyemaechi

  1. By: Slemrod, Joel; Collins, Brett; Hoopes, Jeffrey L.; Reck, Daniel; Sebastiani, Michael
    Abstract: We investigate the response of small businesses operating as sole proprietorships to Form 1099-K, an information report introduced in 2011 which provides the Internal Revenue Service with information about electronic sales (e.g., credit card sales). The overall impact of the policy appears to be relatively small. However, theory and distributional analysis isolates a subset of taxpayers expected to be especially sensitive to reporting, who report receipts equal to or slightly exceeding the receipts reported on 1099-K. Among this set of taxpayers, information reporting induced more complete tax reporting–30% of sensitive taxpayers filed a return declaring business income for the first time, and among those that were already filing, we estimate an increase in reported receipts by up to 24%. These taxpayers largely offset increased reported receipts with increased reported expenses, which do not face information reporting, diminishing the impact on reported net taxable income.
    Keywords: Tax evasion; Information reporting; Small businesses; Tax enforcement; Administrative data
    JEL: H20 H23 H25 H26
    Date: 2017–05–01
  2. By: Mascagni, Giulia; Santoro, Fabrizio; Mukama, Denis
    Abstract: African revenue authorities developed a growing interest in tax education as a key driver of compliance and in the context of a modern approach to tax administration (Mascagni and Santoro, 2018). Indeed, poor tax knowledge has a number of potentially serious implications. Firstly, it is likely to affect compliance. On the one hand, uninformed taxpayers may find it hard to navigate complex tax systems and thus may fail to comply. On the other hand, they may be unaware of tax benefits available to them and might end up paying more than they should. Secondly, taxpayers who are confused about their tax rights and obligations are more vulnerable to corruption and may therefore perceive the tax system as unfair. These issues are especially serious in low-income countries, where administrative capacity is weak and both access to and quality of tax information and advice is generally low. While taxpayer education plays a potentially crucial role in tax compliance, rigorous evidence is almost inexistent (Mascagni and Santoro, 2017). We aim to fill a gap in the literature by evaluating the effectiveness of a taxpayer education programme, implemented by the Rwandan Revenue Authority (RRA), on taxpayer knowledge, perceptions and tax compliance. To the best of our knowledge, this is the first study of this type in any low-income country and only the second touching upon this theme in any country.
    Keywords: Finance, Governance,
    Date: 2019
  3. By: Ligomeka, Waziona
    Abstract: The proportion of economic activities that are categorised as informal or small-scale is unusually high in Zimbabwe. Given the depressed state of the economy over an extended period, it is logical that the government is more actively taxing small-scale business activities. Specifically, in 2005 the government introduced a presumptive tax (a tax on gross income), to be paid by small-scale traders in some businesses. The presumptive tax was broadened to include more small-scale businesses in 2011. While increasingly more of the small-scale sector is being subjected to the presumptive tax, little is known about the impact of this tax on the traders themselves – particularly its impact on women, who make up the majority of small-scale traders in Zimbabwe. This study aims to unravel the reality of taxation in Zimbabwe’s small-scale sector by focusing on flea market traders. The research involved interviewing small-scale traders in flea markets around Harare and Bulawayo, government officials and members of a smallscale traders association, and focus group discussions with flea market traders. This paper analyses the different types of tax payments that flea market traders make, the proportion of their income paid in taxes, and gender disparity in flea market trader taxation. Using a representative taxpayer approach, it finds that flea market traders pay a higher proportion of their income in taxes than formal traders, and therefore taxes paid by flea market traders are highly regressive. Women who operate in flea markets are more adversely affected by taxes because they earn a lot less than men (and are thus affected by the regressive nature of informal taxes), and because the markets in question have more women than men. The paper considers the implications of these findings on tax policy as it pertains to small-scale traders in general, and specifically to flea market traders.
    Keywords: Finance, Gender, Governance,
    Date: 2019
  4. By: Dike, Onyemaechi
    Abstract: Workplace safety is a topical issue in public policy debates in industrializing countries like Cambodia where high economic growth rates have yet to translate into higher job quality. This paper studies the relationship between informal employment and occupational health using the 2012 Cambodia Labour Force Survey. I estimate probit models and find that informal employment on its own is associated with a significant increase in the probability of work injury/illness. However in the most complete specification with controls for personal, job and firm characteristics, the effect of informal employment turns out to be small in magnitide and statistically insignificant. I discuss possible explanations for this finding. Results from this analysis suggest that in a context of weak administrative capacity for the enforcement of labour regulations, as is the case in Cambodia, work health risks are a concern across the board, not just in the informal sector.
    Keywords: Informal employment, injury risk, working conditions
    JEL: J28 J3 J4
    Date: 2019–03–24

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