nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2019‒05‒06
ten papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. The effects of official and unofficial information on tax compliance By Filomena Garcia; Luca David Opromolla; Andrea Vezzulli; Rafael Marques
  2. Transparency and Tax Evasion: Evidence from the Foreign Account Tax Compliance Act (FATCA) By De Simone, Lisa; Lester, Rebecca; Markle, Kevin
  3. Presumptive Income Tax Assessment of SME's in Addis Ababa, Ethiopia By Mekonnen Workneh, Amanuel; Mulugeta Baileyegn, Endalkachew; Stewart-Wilson, Graeme
  4. Transaction-tax evasion in the housing market By José G. Montalvo; Amedeo Piolatto; Josep Raya
  5. Are the South African fiscal authorities serious about tax base broadening? By Estian Calitz
  6. SMMES in South Africa: Understanding the Constraints on Growth and Performance By Haroon Bhorat; Zaakhir Asmal; Kezia Lilenstein; Kirsten van der Zee
  7. How Stable Is Labour Market Dualism? Reforms of Employment Protection in Nine European Countries By Eichhorst, Werner; Marx, Paul
  8. La regularización del empleo asalariado no registrado análisis de trayectorias posfiscalización laboral By Trevignani, Virginia.; Carné, Martín.; Muruaga, Fernando.
  9. Crecimiento verde inclusivo e informalidad By Cristina Férnandez; Francisco Fernández; Nicolás Gómez
  10. La informalidad empresarial, el pago de tributos locales y el monotributo: el caso de las microempresas en Bogotá By Cristina Fernández; Francisco Fernández; Fedesarrollo

  1. By: Filomena Garcia (Indiana University, & UECE); Luca David Opromolla (Banco de Portugal, CEPR, CESifo, & UECE); Andrea Vezzulli (University of Insubria); Rafael Marques (ISEG-School of Economics and Management)
    Abstract: The administration of tax policy has shifted its focus from enforcement to complementary instruments aimed at creating a social norm of tax compliance. In this paper we provide an analysis of the effects of the dissemination of information regarding the past degree of tax evasion at the social level on the current individual tax compliance behavior. We build an experiment where, for given levels of audit probabilities, fines and tax rates, subjects have to declare their income after receiving either a communication of the official average tax evasion rate or a private message from a group of randomly matched peers about their tax behavior. We use the experimental data to estimate a dynamic econometric model of tax evasion. The econometric model extends the Allingham-Sandmo-Yitzhaki tax evasion model to include self-consistency and endogenous social interactions among taxpayers. We find four main results. First, tax compliance is very persistent. Second, the higher the official past tax evasion rate the higher the degree of persistence: evaders are more likely to evade again, and compliant individuals are more likely to comply again. Third, when all peers communicate to have evaded (complied) in the past, both evaders and compliant individuals are more likely to evade (comply). Fourth, while both treatments, and especially the unofficial information treatment, are associated, in the context of our experiment, with a significantly larger growth in evasion intensity, the aggregate effect depends on the characteristics of the population. In countries with inherently low levels of tax evasion, official information can have beneficial effects by consolidating the behavior of compliant individuals. However, in countries with inherently high levels of tax evasion, official information can have detrimental effects by intensifying the behavior of evaders. In both cases, the impact of official information is magnified in the presence of strong peer effects.
    Keywords: Tax morale, Information, Tax evasion, Experiment, Peer Effects
    JEL: H26 D63 C24 C92 Z13
    Date: 2018–04
  2. By: De Simone, Lisa (Stanford University); Lester, Rebecca (Stanford University); Markle, Kevin (University of Iowa)
    Abstract: We examine how U.S. individuals respond to regulation intended to reduce offshore tax evasion. Specifically, we study investment responses to the Foreign Account Tax Compliance Act (FATCA), which requires foreign financial institutions to report information to the U.S. government regarding U.S. account holders. We document a $15.3 billion decrease in equity foreign portfolio investment to the U.S. from tax haven countries after FATCA implementation, consistent with a decrease in “round-tripping†investment activity attributable to U.S. investors’ offshore tax evasion activities. When testing total worldwide investment out of financial accounts in havens post-FATCA, we find a decline of $56.6-$78.0 billion. We also provide evidence of other important consequences of this regulation, including increased expatriations of U.S. citizens and greater investment in alternative assets not subject to FATCA reporting, such as residential real estate and artwork. Our study contributes to both the academic literature on regulation and crime and to the policy analysis of regulation to reduce tax evasion.
    Date: 2019–02
  3. By: Mekonnen Workneh, Amanuel; Mulugeta Baileyegn, Endalkachew; Stewart-Wilson, Graeme
    Abstract: At their most general, presumptive taxes seek to use indirect means to assess the liability of a specific taxpayer, which differ from the usual rules based on taxpayer accounts. Many countries use some form of presumptive taxation to simplify the rules for businesses and individuals that frequently escape taxation. Ethiopia uses presumptive taxation as a simplified method of revenue collection from small informal sector firms. To implement its presumptive tax, the Ethiopian Revenue and Customs Authority (ERCA) carries out an assessment process to estimate the income earned by small informal sector firms. Defined as ‘Category C’ taxpayers—those with an estimated annual turnover less than 500,000 birr (US$17,500)—such firms are subject to a ‘turnover-based’ or ‘indicator-based’ presumptive assessment. Annual tax bills are then levied on the assessed income of Category C taxpayers.
    Keywords: Finance, Governance,
    Date: 2019
  4. By: José G. Montalvo (Universitat Pompeu Fabra-ICREA, BGSE); Amedeo Piolatto (Universitat Autònoma de Barcelona, Institut d’Economia de Barcelona (IEB), BGSE, MOVE); Josep Raya (Universitat Pompeu Fabra, ESCSE (Tecnocampus))
    Abstract: We model the behaviour of a buyer trying to evade the real estate transfer tax. We identify over-appraisal as a key, easily-observable element that is inversely related with tax evasion. We conclude that the tax authority could focus auditing efforts on low-appraisal transactions. We include ‘behavioural’ components (shame and stigma) allowing to introduce buyers' (education) and societal (social capital) characteristics that explain individual and idiosyncratic variations. Our empirical analysis confirms the predictions using a unique database, where we directly observe: real payment, value declared to the authority, appraisal, buyers' educational level and local levels of corruption and trust.
    Keywords: Transfer tax, tax evasion, second-hand housing market, overappraisal, Loan-To-Value, corruption, social capital, stigma, shame, education
    JEL: G21 H26 R21
    Date: 2019
  5. By: Estian Calitz (Emeritus Professor, Department of Economics, Stellenbosch University)
    Abstract: Developing countries are often advised to broaden their tax base. The South African fiscal authorities have at various times claimed to do so, inter alia in order to reduce tax rates. The paper explores whether they have been serious about base broadening. Various conceptual issues are raised in defining base broadening and base erosion. Drawing on budget documentation, tax measures of base broadening and erosion from 1994 to 2018 were tabulated. A selection of the most salient nonquantified measures and all quantified measures are presented. Net budgeted base broadening (2018 prices) of R1.7 billion is reported, in the process of which various tax increases and decreases were also implemented. The need for a much more systematic quantification of all base-broadening and base-erosion tax measures in South Africa is indicated. This should not only occur at the time of announcement but especially to track and report the actual outcome of all such measures in subsequent years.
    Keywords: Tax base broadening, Tax efficiency, Tax base erosion, Tax evasion and avoidance, Tax measures, South African fiscal authorities
    JEL: H20 H21 H26
    Date: 2019
  6. By: Haroon Bhorat; Zaakhir Asmal; Kezia Lilenstein; Kirsten van der Zee (University of Cape Town; Director)
    Abstract: Small, Medium and Micro Enterprises (SMMEs) have been identified as a key component to advancing inclusive growth and development in South Africa. This paper serves to present a snapshot of the current profile of SMMEs in South Africa as well as the key inhibitors of growth for SMMEs. We provide a comparative perspective of the role of SMMEs and entrepreneurship in South Africa, then profile the current landscape of SMMEs in South Africa, evaluating the characteristics of SMMEs across three dimensions: firm, owner and employee characteristics. Following this, we distinguish between formal and informal SMMEs in order to highlight the unique nature of informality in South Africa. This paper also evaluates the endogenous and exogenous impediments to growth faced by South African SMMEs. Endogenous challenges are internal to the firm while exogenous challenges are external to the firm. In summarising these findings, we present the major challenges inhibiting the growth of SMMEs in South Africa, taking into account firm heterogeneity in terms of both firm size and informality status.
    Keywords: SMMEs; South Africa; inclusive growth; development; entrepreneurship; informality
    JEL: E2 E26 J26 J4 O1 O4 O17
    Date: 2018–07
  7. By: Eichhorst, Werner (IZA); Marx, Paul (University of Duisburg-Essen)
    Abstract: Labour market segmentation currently is at the forefront of national and European policy debates. While the European Commission and the OECD try to promote what they see as more inclusive policies, academic observers remain skeptical. Particularly the dualisation literature points to stable political economy equilibria that stack the cards against overcoming divisions between labour market insiders and outsiders. Other contributions point to a more dynamic political setting, in which negative feedback effects tend to challenge any 'dualisation consensus'. Against this background, this paper traces recent reform trajectories in a diverse group of European countries that are characterised by a high share of temporary employment: France, Germany, Italy, Netherlands, Poland, Portugal, Slovenia, Spain, and Sweden. Our case studies show that recent reforms of employment regulation are characterised by much more dynamism than one would expect based on the experiences of the two preceding decades - or based on dualisation or insider-outsider theory. The reform trajectories are characterised by rather contradictory approaches, sometimes in close succession. This even includes, in several cases, substantive deregulation of dismissal protection for open-ended contracts.
    Keywords: fixed-term contracts, labour market dualism, segmentation, employment protection, labour market reforms
    JEL: J41 J42 J65
    Date: 2019–04
  8. By: Trevignani, Virginia.; Carné, Martín.; Muruaga, Fernando.
    Abstract: El empleo no registrado ante el Estado implica para el trabajador asalariado una situación de vulnerabilidad, al no poder acceder a las prestaciones de la seguridad social, como cobertura de salud, jubilación, indemnización por despido, entre otras. Se trata de una problemática que en Argentina afecta a aproximadamente el 35% de los trabajadores en relación de dependencia. Según la Recomendación núm. 204 de la Organización Internacional del Trabajo (OIT), la fiscalización del trabajo es una de las medidas tendientes a promover el tránsito desde la economía informal hacia la formal. Asumiendo que no solo es importante detectar el empleo no registrado, sino también tender a su posterior registro de manera perdurable, el presente estudio analiza las trayectorias de regularización de las relaciones laborales detectadas como no registradas durante las inspecciones realizadas por el Ministerio de Trabajo y Seguridad Social (MTySS) de la Provincia de Santa Fe, en Argentina. Se trabajó con una cohorte de relaciones laborales inspeccionadas durante el período 2015-2016, que se obtuvo a partir de la fusión de los registros administrativos provenientes de diferentes dependencias. Luego se realizó un seguimiento durante 12 meses que buscó: describir la reacción ante la inspección, analizar la duración temporal de la registración posinspección y construir una tipología de trayectorias laborales que permita identificar distintos patrones de regularización. Los resultados obtenidos por este estudio permiten un mayor conocimiento de las reacciones acaecidas ante la inspección y de la duración de la regularización laboral. En este sentido, los resultados pueden contribuir a una mejor planificación de las inspecciones. Entre los hallazgos, se destaca: a) que del total de las relaciones laborales informales inspeccionadas, el 23% reacciona de manera inmediata a la fiscalización (permaneciendo 12 meses regularizadas), en tanto, el 19,6% no cambia ante el estímulo y el resto difiere en reacción y duración de la regularización; b) que la regularización posfiscalización es más durable entre los trabajadores de ambos sexos que poseen 25 a 59 años, en empresas industriales y comerciales medianas y pequeñas, constituidas con personería jurídica y localizadas en la Región IV (específicamente, en el Gran Rosario); y c) que, en comparación con las relaciones laborales registradas, las no registradas exhiben trayectorias más cortas (menos de 6 meses, es decir, menos de la mitad de los meses que dura la ventana de observación de este estudio).
    Abstract: Employment not registered with the state places waged workers in a vulnerable situation insofar as they do not have access to the benefits of the social security system, such as health care coverage, a pension, severance pay, and others. In Argentina, some 35% of all waged workers are not registered. According to International Labour Organization (ILO) Recommendation N° 204, labor inspection is one of the measures that tends to foster transition from the informal to the formal economy. On the assumption that it is important not only to detect non-registered employment, but also to foster its later and enduring registration, this study analyzes the regularization trajectories of labor relations detected as non-registered in inspections performed by the Ministerio de Trabajo y Seguridad Social [Ministry of Labor and Social Security, MTySS) of Santa Fe province, Argentina. Information on a set of labor relations inspected in 2015 and 2016 was yielded by merging administrative records from different agencies. Subsequently, a twelve-month follow-up of those labor relations was performed with the aim of describing the reaction to inspection; analyzing how long post-inspection registration with the social security system lasted; and building a typology of labor trajectories indicative of regularization patterns. The results obtained by this study shed light on reaction to inspection and the duration of regularization. For that reason, they can contribute to better labor inspection planning.The following stand out among the results obtained: a) of all the informal labor relations inspected, 23% reacted to inspection immediately and remained registered for twelve months; 19.6% did not respond to the stimulus; and the rest varied in level of reaction to the stimulus and in duration of regularization; b) post-inspection regularization was more enduring among workers between the ages of 25 and 59, regardless of sex, and among workers at small and medium-sized industrial and commercial firms established as legal entities and located in Region IV (Greater Rosario); c) compared with registered labor relations, non registered labor relations were shorter (less than six months, i.e. less than half the number of months than in the observation window).
    Date: 2019
  9. By: Cristina Férnandez; Francisco Fernández; Nicolás Gómez
    Abstract: El presente trabajo realiza un análisis de la informalidad y el crecimiento verde inclusivo, con énfasis en los sectores de minería, actividades agropecuarias, silvicultura, construcción y manejo de residuos. La informalidad se estima para las unidades productivas desde el punto de vista de la normativa laboral, empresarial, ambiental y de títulos. El crecimiento verde inclusivo, se mide mezclando las metodologías utilizadas para estimar el Índice de Crecimiento Sostenible del WEF, y el Índice EPI, de la Universidad de Yale. Además de hacer evidentes las altísimas tasas de informalidad en los sectores seleccionados, la conclusión principal de este trabajo es que predomina una relación positiva entre formalidad y buen desempeño ambiental y esta relación se muestra robusta y significativa, aún después de controlar por variables observables como el tamaño, el sector, la geografía y la educación (como proxy de ingresos). Aunque no es posible realizar un ejercicio de causalidad, nuestros resultados sugieren que la relación entre las dos variables se explica principalmente por determinantes comunes. Bajo este entendido y después de realizar un análisis de ecuaciones simultáneas para establecer los determinantes del desempeño ambiental y laboral, formulamos algunas recomendaciones de política.
    Keywords: nformalidadInformalidad LaboralInformalidad de Firma, Crecimiento Verde, Crecimiento Inclusivo
    JEL: Q01 Q51 Q56
    Date: 2018–11–30
  10. By: Cristina Fernández; Francisco Fernández; Fedesarrollo
    Abstract: La presente sección busca analizar los fenómenos de informalidad empresarial y tributaria por parte de las microempresas en Bogotá. Lo anterior indica que nuestra unidad de análisis son las empresas de diez o menos trabajadores; las definiciones y medidas de la informalidad empresarial y tributaria que se van a utilizar en el resto del trabajo, y la relación que existe entre estas dos variables se presenta a continuación.
    Keywords: Informalidad, Informalidad de Firma, Informalidad Tributaria, Estructura Tributaria, Finanzas Locales, Finanzas Públicas, Impuestos, Impuestos Locales, Ingresos Fiscales, Tributación, Bogotá, Distrito Capital
    JEL: J21 O17 D24 E24 E26 E62 H21 H20 H71
    Date: 2018–11–30

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