nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2019‒04‒15
seven papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Tax Professionals: Tax-Evasion Facilitators or Information Hubs? By Battaglini, Marco; Guiso, Luigi; Lacava, Chiara; Patacchini, Eleonora
  2. Multiple Violations of Labor Market Regulations: Patterns in the Peruvian Labor Market and the Impact of Enforcement By Mariana Viollaz
  3. Tax Administration Reforms: Lessons from Georgia and Uganda By Magumba, Margaret
  4. A Contrast of Uganda and Georgia's Tax Administration Reforms: Lessons from Georgia's Experience By Magumba, Margaret
  5. Minimizing Smuggling and Restoring Public Trust in the Philippine Bureau of Customs By Kenneth Abante
  6. Revenue Administration; Short-Term Measures to Increase Customs Revenue in Low-Income and Fragile Countries By Gilles Montagnat-Rentier
  7. Oil Price Shocks and Protest: Can Shadow Economy Mitigate? By Phoebe W. Ishak; Ulrich Fritsche

  1. By: Battaglini, Marco; Guiso, Luigi; Lacava, Chiara; Patacchini, Eleonora
    Abstract: To study the role of tax professionals, we merge tax records of 2.5 million taxpayers in Italy with the respective audit files from the tax revenue agency. Our data covers the entire population of sole proprietorship taxpayers in seven regions, followed over seven fiscal years. We first document that tax evasion is systematically correlated with the average evasion of other customers of the same tax professional. We then exploit the unique structure of our dataset to study the channels through which these social spillover effects are generated. Guided by an equilibrium model of tax compliance with tax professionals and auditing, we highlight two mechanisms that may be behind this phenomenon: self-selection of taxpayers who sort themselves into professionals of heterogeneous tolerance for tax evasion; and informational externalities generated by the tax professional activities. We provide evidence supporting the simultaneous presence of both mechanisms.
    Keywords: tax enforcement; tax evasion
    JEL: H26 K34
    Date: 2019–04
  2. By: Mariana Viollaz (Bank of Mexico)
    Abstract: This paper quantifies labor law violations and how the enforcement efforts impact on the compliance level by considering the possibility of different labor regulations being violated simultaneously. The findings for the Peruvian labor markets over the period 2004-2013 indicate that: (i) multiple violations of labor regulations are an important feature of Peruvian labor markets; (ii) young workers, workers with low level of education, indigenous workers, workers in micro firms and workers employed in the agricultural sector have higher chances of being deprived of several labor benefits simultaneously; (iii) the enforcement of labor regulations, captured through the number of labor inspections at the region level, is effective in detecting and penalizing extreme situations of multiple violations of the labor law, but the evidence also suggests that firms adjust only partially as an attempt to reduce the amount of a potential fine if discovered, and that laid off workers during the adjustment process moved to the informal sector where firms are not inspected. These findings are useful from a policy perspective indicating that there is space to improve firms’ incentives when facing an increase in the enforcement effort.
    JEL: J81 J83 J88
    Date: 2019–04
  3. By: Magumba, Margaret
    Abstract: Several tax revenue administrations have implemented significant reforms along their journeys with the aim of attaining higher tax revenue collections, improved taxpayer compliance and more efficient service delivery. The results defer from country to country depending on the nature of the reforms implemented and the circumstances surrounding them. This paper analyses and contrasts the tax reforms implemented in Georgia during its post-revolution period (after 2003) with those implemented in Uganda between 1991 and 2014. The analysis seeks to establish why Uganda’s reforms did not achieve as much success as those of Georgia even though the two countries’ reforms had much in common, and to derive key lessons from Georgia’s experience. Whereas there are rational justifications for the difference in results attained from the two countries’ tax reforms, the paper proposes that Uganda – and other countries – can also be successful if similar principles are followed. The key lessons derived from Georgia’s experience include: (1) for tax reforms to be successful, they must be driven by both the tax administration leadership and the overriding government leadership; (2) in order to curb corruption, there must be a transformation of mindset of both tax administrators and taxpayers; (3) early success of tax reforms must be matched with visible improvement in public service delivery in order to ensure sustainability of achievements; (4) tax administrators must be empowered to perform their duties without political interference; (5) tax laws and reforms must be applied uniformly to all taxpayers; and (6) salary increments for tax administrators must be matched with an increased probability of detection of corruption and guaranteed termination of employment should a tax administrator be found guilty of corruption.
    Keywords: Finance, Governance,
    Date: 2019
  4. By: Magumba, Margaret
    Abstract: Tax revenue administration in Uganda went through a series of reforms from 1991–2014, with the height of these reforms occurring from 2004–2014. These reforms achieved a lot of improvement in the quality of tax administrators’ service delivery, tax compliance and revenue collection. However, in contrast with some other countries that implemented somewhat similar reforms, the accomplishments of Uganda’s reforms dwindle. One such country is Georgia. This paper describes Uganda and Georgia’s tax reforms, contrasts them and their results, and suggests reasons for the differences. The ultimate goal is to derive lessons from Georgia’s reform experience. These can then be applied in other countries, including Uganda moving forward.
    Keywords: Finance, Governance,
    Date: 2019
  5. By: Kenneth Abante
    Abstract: This policy analysis attempts to answer three questions: First, what is the extent of smuggling and customs tax evasion in the Philippines? Second, how can customs improve its risk management system in the short term to minimize officers’ discretion and improve trade facilitation without abdicating its other mandates of revenue generation and border control? Third, what types of reforms and political commitment are necessary in the long term to restore public trust in the Bureau of Customs?
    Keywords: Industrial Policy
  6. By: Gilles Montagnat-Rentier
    Abstract: This note discusses administrative measures that can be implemented by customs administrations of low-income and fragile countries in a short period (about a year) to improve traders’ compliance and improve revenue collection. These suggested actions have been identified based on the experience acquired through the International Monetary Fund’s (IMF) Fiscal Affairs Department’s (FAD) technical assistance (TA), particularly the findings and recommendations of TA missions to sub-Saharan African countries. Strengthening low-capacity customs administrations requires structural reforms to support the effective implementation of defined strategies. Developing core operational functions such as risk management, audit, investigation and intelligence are good examples of such reforms. Modernizing human resource management policies or achieving a fully automated environment in a customs administration are longer-term reform projects. Long-term reforms are not addressed here. The note focuses on targeted actions with a potential to increase trade revenue in the short term, and which can be taken without mobilizing large resources or engaging in a broad reorganization. It is hoped that the suggestions in this note will help stakeholders, including country authorities, customs management, donors and TA partners, area departments of the IMF, FAD, and the IMF regional TA centers, identify, design, and implement short-term changes in customs administrations. If implemented effectively, these changes should contribute to a noticeable improvement of revenue performance.
    Date: 2019–04–04
  7. By: Phoebe W. Ishak (Universität Hamburg (University of Hamburg)); Ulrich Fritsche (Universität Hamburg (University of Hamburg))
    Abstract: In this paper, we study the impact of oil price shocks on the incidence of protest over the period 1991-2015. Our results indicate that negative oil price shocks are followed by an uptick in the number of protests and that a higher initial size of the shadow economy allows to mitigate the negative consequences of low oil prices on the likelihood of protest. To explain these results, we show that negative oil price shocks lead to a significant increase in the size of the shadow economy in highly oil dependent countries and that this countercyclical behavior is largely due to oil-price-driven income shocks. In our estimations, a decrease in the GDP per capita by one percentage point increases the shadow economy by 0.54 percentage points. This suggest that the shadow economy’s capacity to absorb persistent oil price fluctuations without provoking political unrest, should regard it as a mitigation tool rather than an economic burden.
    Keywords: Oil Price Shocks, Protest, Shadow Economy, Income
    Date: 2019–04

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