nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2019‒05‒27
four papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Tax Audits as Scarecrows. Evidence from a Large-Scale Field Experiment By Bergolo, Marcelo; Ceni, Rodrigo; Cruces, Guillermo; Giaccobasso, Matias; Perez-Truglia, Ricardo
  2. How to Improve Tax Compliance? Evidence from Population-wide Experiments in Belgium By De Neve, Jan-Emmanuel; Imbert, Clement; Spinnewijn, Johannes; Tsankova, Teodora; Luts, Maarten
  3. Analysis of tax evasion methods in Russia and ways to counter them By Gromov, Vladimir (Громов, Владимир); Zakharenkova, Elena (Захаренкова, Елена); Korytin, Andrey (Корытин, Андрей); Milogolov, Nikolay (Милоголов, Николай)
  4. The Optimal Turnover Threshold and Tax Rate for SMEs By Feng Wei; Jean-François Wen

  1. By: Bergolo, Marcelo (IECON, Universidad de la República); Ceni, Rodrigo (IECON, Universidad de la República); Cruces, Guillermo (CEDLAS-UNLP); Giaccobasso, Matias (University of California, Los Angeles); Perez-Truglia, Ricardo (University of California, Los Angeles)
    Abstract: The canonical model of Allingham and Sandmo (1972) predicts that firms evade taxes by optimally trading off between the costs and benefits of evasion. However, there is no direct evidence that firms react to audits in this way. We conducted a large-scale field experiment in collaboration with Uruguay's tax authority to address this question. We sent letters to 20,440 small- and medium-sized firms that collectively paid more than 200 million dollars in taxes per year. Our letters provided exogenous yet nondeceptive signals about key inputs for their evasion decisions, such as audit probabilities and penalty rates. We measured the effect of these signals on their subsequent perceptions about the auditing process, based on survey data, as well as on the actual taxes paid, based on administrative data. We find that providing information about audits had a significant effect on tax compliance but in a manner that was inconsistent with Allingham and Sandmo (1972). Our findings are consistent with an alternative model, risk-as-feelings, in which messages about audits generate fear and induce probability neglect. According to this model, audits may deter tax evasion in the same way that scarecrows frighten off birds.
    Keywords: tax, evasion, audits, penalties, frictions
    JEL: C93 H26 K34 K42 Z13
    Date: 2019–05
  2. By: De Neve, Jan-Emmanuel (University of Oxford); Imbert, Clement (University of Warwick); Spinnewijn, Johannes (London School of Economics); Tsankova, Teodora (University of Warwick); Luts, Maarten (FPS Finance)
    Abstract: We study the impact of deterrence, tax morale, and simplifying information on tax compliance. We ran five experiments spanning the tax process which varied the communication of the tax administration with all income taxpayers in Belgium. A consistent picture emerges across experiments: (i) simplifying communication increases compliance, (ii) deterrence messages have an additional positive effect, (iii) invoking tax morale is not effective. Even tax morale messages that improve knowledge and appreciation of public services do not raise compliance. In fact, heterogeneity analysis with causal forests shows that tax morale treatments backfire for most taxpayers. In contrast, simplification has large positive effects on compliance, which diminish over time due to follow-up enforcement. A discontinuity in enforcement intensity, combined with the experimental variation, allows us to compare simplification with standard enforcement measures. Simplification is far more cost-effective, allowing for substantial savings on enforcement costs, and also improves compliance in the next tax cycle
    Keywords: Tax Compliance ; Field Experiments ; Simplification ; Enforcement
    JEL: C93 D91 H20
    Date: 2019
  3. By: Gromov, Vladimir (Громов, Владимир) (The Russian Presidential Academy of National Economy and Public Administration); Zakharenkova, Elena (Захаренкова, Елена) (The Russian Presidential Academy of National Economy and Public Administration); Korytin, Andrey (Корытин, Андрей) (The Russian Presidential Academy of National Economy and Public Administration); Milogolov, Nikolay (Милоголов, Николай) (The Russian Presidential Academy of National Economy and Public Administration)
    Abstract: The paper deals with various aspects of one of the most important problems of present day – tax evasion. The desire to minimize taxes often encourages taxpayers to look for ways to circumvent tax legislation in order to get tax benefits without being liable for that. Tax schemes are the challenge for any state, but to overcome this problem we need a comprehensive approach that includes institutional and technological, tax and legal solutions.
    Date: 2019–04
  4. By: Feng Wei; Jean-François Wen
    Abstract: Presumptive income taxes in the form of a tax on turnover for SMEs are pervasive as a way to reduce the costs of compliance and administration. We analyze a model where entrepreneurs allocate labor to the formal and informal sectors. Formal sector income is subjected either to a corporate income tax or a tax on turnover, depending on whether their turnover exceeds a threshold. We characterize the private sector equilibrium for any given configuration of tax policy parameters (corporate income tax rate, turnover tax rate, and threshold). Given private behavior, social welfare is optimized. We interpret the first-order conditions for welfare maximization to identify the key margins and then simulate a calibrated version of the model.
    Date: 2019–05–07

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