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on Informal and Underground Economics |
| By: | Nicolas Jacquemet (CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne, PSE - Paris School of Economics); Stephane Luchini (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université - EHESS - École des hautes études en sciences sociales); Antoine Malézieux (BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique, University of Exeter Business School - University of Exeter Business School); Jason Shogren (Departement Economy and Finance, University of Wyoming - UW - University of Wyoming) |
| Abstract: | Why do people pay taxes? Rational choice theory has fallen short in answering this question. Another explanation, called "tax morale", has been promoted. Tax morale captures the behavioral idea that non-monetary preferences (like norm-submission, moral emotions and moral judgments) might be better determinants of tax compliance than monetary trade-offs. Herein we report on two lab experiments designed to assess whether norm-submission, moral emotions (e.g., affective empathy, cognitive empathy, propensity to feel guilt and shame) or moral judgments (e.g., ethics principles, integrity, and moralization of everyday life) can help explain compliance behavior. Although we find statistically significant correlations of tax compliance behavior with empathy and shame, the economic significance of these correlations are low more than 80% of the variability in compliance remains unexplained. These results suggest that tax authorities should focus on the institutional context, rather than individual preference characteristics, to handle tax evasion. |
| Keywords: | tax evasion,tax morale,morality,personality traits,psychometrics |
| Date: | 2019–02–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-02008071&r=all |
| By: | Dang Duc; La Hai |
| Abstract: | Personal income tax is attracting more attention from the Vietnamese government, which has been looking for a way to reinforce its budget revenue.Although this tax plays an increasing role, representing 7.3 per cent of the revenue expected in 2018, this figure is still small, suggesting an issue of tax evasion and ineffective tax policy.Using the Viet Nam Household Living Standard Surveys 2010, 2012, 2014, and 2016 and the expenditure-based approach pioneered by Pissarides and Weber, this paper first applies the non-linear least squares method to distinguish under-declaration rates for various income sources, and then uses a static microsimulation SOUTHMOD model to estimate the impact of income under-reporting on the scale of tax evasion and income inequality of Viet Nam.The paper finds that the officially reported income only accounts for 80 per cent of the true income, leaving 20 per cent unreported. Consequently, without income under-reporting, tax revenue in Viet Nam would increase by about VND23,000 billion (equivalent to US$1.0 3 billion) and the Gini coefficient for disposable income would increase from 0.379 to 0.409. |
| Keywords: | Tax evasion,Income inequality,Income under-reporting,permanent income,SOUTHMOD |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp2018-148&r=all |
| By: | Sahnoun, Marwa; Abdennadher, Chokri |
| Abstract: | This paper studies the effects and causal links between the shadow economy and the unemployment rate using a dynamic simultaneous-equation panel data model for 38 developing and 40 developed countries over the 2000−2015 period. The analysis suggests that there is a unidirectional and negative causality running from the unemployment rate to the shadow economy in the developing countries. However, in the developed countries, there is a bidirectional and negative causal relationship between the shadow economy and unemployment rate. The sensitivity of the results makes the authors realize that institutional quality interacts strongly with the relationship between the shadow economy and the unemployment rate. In countries with a good institutional quality, the unemployment rate is associated with a weak informal economy, whereas in countries with low institutional quality, it strongly drives the informal economy. |
| Keywords: | shadow economy,unemployment rate,institutional quality,dynamic simultaneous-equation panel data models |
| JEL: | O17 E26 J60 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201930&r=all |
| By: | Raul Villafuerte-Segura; Eduardo Alvarado-Santos; Benjamin A. Itza-Ortiz |
| Abstract: | We study a Cournot duopoly model with tax evasion and time delay. We prove that if the marginal production costs of both competing firms are equal then the equilibrium point is asymptotically stable and independent of time delay. As consequence, our model can not have bifurcations if the delay, as a parameter, is varied. It further imply that less tax evasion and higher public revenue can be achieved either by increasing the effectiveness of audits or by adjusting the penalties for tax evasion. |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1905.02817&r=all |
| By: | Knut Løyland; Oddbjørn Raaum; Gaute Torsvik; Arnstein Øvrum |
| Abstract: | Tax administrations use machine learning to predict risk scores as a basis for selecting individual taxpayers for audit. Audits detect noncompliance immediately, but may also alter future filing behavior. This analysis is the first to estimate compliance effects of audits among high-risk wage earners. We exploit a sharp audit assignment discontinuity in Norway based on individual tax payers risk score. Additional data from a random audit allow us to estimate how the audit effect vary across the risk score distribution. We show that the current risk score audit threshold is set far above the one that maximizes net public revenue. |
| Keywords: | tax audits, tax revenue, tax reporting decisions, income tax, machine learning, risk profiling |
| JEL: | D04 H26 H83 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7616&r=all |
| By: | Julien Albertini (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique); Arthur Poirier; Thepthida Sopraseuth (THEMA - Théorie économique, modélisation et applications - UCP - Université de Cergy Pontoise - Université Paris-Seine - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | We shed light on the driving forces behind unemployment fluctuations and short-run changes in the informality rate on the Argentine labor market. Using Argentine survey data, we measure worker flows between formal employment, informal employment, unemployment and non-participation. We propose a methodology to correct for the discontinuity of Argentine survey data and that is able to compute consistent time series of quarterly ins and outs of informal work. Using variance decompositions and counterfactual exercises, we show that the ins and outs of informal employment are key drivers of labor market fluctuations. In particular, outflows from unemployment to informal employment account for 37% of fluctuations in the unemployment rate. In addition, our analysis suggests that informality is: (i) a flexible sector that is used in recessionary periods as a buffer against income losses and (ii) a stepping stone towards formal employment. The observed large changes in the informality rate are well explained by the change in job mobility between the formal and informal sectors as well as variations in hirings from unemployment and non-participation in the informal sector. |
| Keywords: | worker flows,informality,unemployment,business cycle,emerging market |
| Date: | 2019–04–26 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-02112004&r=all |
| By: | Tran Thi; La Hai |
| Abstract: | Using unbalanced panel data from the small and medium enterprise surveys in Viet Nam in 2005, 2007, 2009, 2011, 2013, and 2015, this paper investigates factors associated with informality in Viet Nam. We assume that household businesses, especially the top tier firms, become formal either because they perceive benefits of formalization such as an increase in the household performance, or because they want to escape bribes and harassment.Using the random effects model with controlling for the pre-formalization trends, our results show that productive household businesses stay informal because net costs from tax payment may surpass net benefits from formalization. Moreover, government controls do not promote formalization, especially among the ‘upper’ tiers of informal households.Our findings raise a suspicion of collusion corruption between informal households in the top tiers and government tax officials. This opens room for future qualitative and quantitative studies to investigate collusion corruption as a determinant of informality in developing countries. |
| Keywords: | Formal and informal,Household business,Informal sector |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp2018-64&r=all |
| By: | Jara Xavier; Rodriguez David |
| Abstract: | The aim of this paper is to quantify the financial cost that informal workers would incur in the event of entering formality, accounting for potential earnings gains upon entry. To do so, we use representative microdata from Ecuador and Colombia, together with detailed tax–benefit models, and simulate transitions to formal employment for all workers observed in informality in the data, with informality defined as non-affiliation to social security.Our results point to strikingly high formalization costs in the two countries, with on average 52.8 and 78.5 per cent of workers’ additional earnings taxed away due to social security payments in Ecuador and Colombia, respectively. Costs are particularly high for self-employed informal workers at the bottom of the earnings distribution.The results are mainly driven by the requirement that workers contribute to social security at least on the basis of the minimum wage in both countries. |
| Keywords: | formalization,Informal sector,Informality,SOUTHMOD,Tax,Tax-benefit microsimulation |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp-2019-14&r=all |
| By: | Demenet Axel; Hoang Quynh |
| Abstract: | Is the lack of ‘managerial capital’, alongside human and financial capital, a constraint on the growth of firms in developing countries? The evidence on this is still mixed, especially among small and medium enterprises.This paper uses a panel of Vietnamese small and medium enterprises to investigate this question. We build a multidimensional measure of managerial capital, combining both practices and attitudes, and link it with consistent estimates of firm-level productivity and mark-up. Even though bias may still affect the estimation of the overall influence of managerial capital on productivity, we show that there is a positive and significant association.Changes in management practices allow firms to be more efficient. Furthermore, we compare this association by firm size, and show that managerial capital is arguably as important for micro and small firms as it is for medium firms. Finally, it appears that the indicators related to ‘entrepreneurial attitudes’ play a more important role than elementary business skills. |
| Keywords: | Small and medium enterprises,Informal sector (Economics),Entrepreneurship |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp2018-69&r=all |
| By: | Hansen Henrik; Rand John; Tarp Finn; Trifkovi? Neda |
| Abstract: | Using data from a new survey of small and medium-sized enterprises in Myanmar, we analyse enterprise demand for formal credit and the extent to which they are constrained in the formal credit market. We account for firms self-selecting out of the credit market in Myanmar.Our data contain information about individual firm owner/manager gender, managerial capacity, and attitude towards risk. We use this information to test whether the allocation of scarce loanable funds is systematically associated with these attributes. It emerges that managerial capacity and risk attitudes are positively associated with the probability of firms demanding credit, while firms with female owner/managers have lower probabilities of demanding credit. On the supply side we find no discernible links to any of the three traits, whereas firm’s size and age have substantial impacts on the probability of obtaining credit. As such, the allocation of credit could improve |
| Keywords: | Personality traits,SMEs,Access to credit,formal credit,Gender |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp-2019-20&r=all |
| By: | Gálvez Gálvez Carlos Eduardo |
| Abstract: | Este artículo presenta un estudio de caso acerca de una experiencia de Formalización de la Propiedad Rural en Colombia. Describe la respuesta que el Estado colombiano proporciona desde el año 2012 a la informalidad en la tenencia de la tierra rural en el municipio de Jamundí, en el departamento del Valle del Cauca. La descripción se construye a partir de información documental, de entrevistas y relatos. Se presenta las acepciones del problema de la informalidad en la tenencia de la tierra y el examen al enfoque de la política pública, en contraste con su ejecución; se muestra algunas reacciones comunitarias y descubre la contribución del programa en la reducción de la informalidad en la tenencia de la tierra en 8 de los corregimientos del municipio. |
| Keywords: | Política de tierras. Problemas rurales colombianos. Informalidad en la tenencia de la tierra rural. Formalización de la propiedad Rural. Mercado de tierras. |
| Date: | 2019–05–08 |
| URL: | http://d.repec.org/n?u=RePEc:col:000149:017282&r=all |