nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2019‒07‒08
nine papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Cheating the Government: Does Taxpayer Perception Matter? By Jeong-Dae Lee
  2. Perceptions of Value Added Tax Filing and Invoicing Compliance in Ethiopia: The Case of Three Federal Branch Offices in Addis Ababa By Tamrie Atnafu, Worku; Gebretsadik Kalayou, Gebregziabhere; Gezae Huluf, Assefa
  3. Practices, Challenges and Prospects for Public Sector Taxation in Ethiopia By Waiswa, Ronald; Fekade, Sebsbie; Lake, Asnakech
  4. Hidden Inequalities: Tax Challenges of Market Women in Enugu and Kaduna States, Nigeria By Akpan, Imaobong; Sempere, Kas
  5. Problem and power: informal commerce between repression and enterprisation By Rangel, Felipe
  6. Nil-Filing in Eswatini: Should the Revenue Authority be Bothered? By Santoro, Fabrizio; Mdluli, Winnie
  7. The Dynamic Effects of Tax Audits By Advani, Arun; Elming, William; Shaw, Jonathan
  8. Who'll stop lying under oath? Empirical evidence from Tax Evasion Games By Nicolas Jacquemet; Stephane Luchini; Antoine Malezieux; Jason Shogren
  9. Nothing is useless in nature: Delhi’s repair economies and value-creation in an electronics “waste” sector By Corwin, Julia Eleanor

  1. By: Jeong-Dae Lee (Macroeconomic Policy and Financing for Development Division, UNESCAP)
    Abstract: Do people cheat because they can get away with it or because they feel that the rules are unfair? I examine this question in the context of tax evasion. Specifically, I incorporate taxpayer perception into a widely used consumption-based method for estimating income tax evasion. Compared to the standard method which distinguishes taxpayers only by their occupational or income type as a way of measuring their “ability” to misreport income, the refined method introduces taxpayers who may be “able but unwilling” to cheat because they feel fairly treated with respect to public services and compared to other taxpayers. Applied to a longitudinal data for Korea (2007-2015), the standard method yields a uniform tax evasion rate of 13 per cent, but the refined method provides a range of 7 to 25 per cent based on taxpayer perception. This implies that strategies for improving tax compliance must be tailored to different motivations for tax evasion.
    Keywords: Tax evasion, tax compliance, tax morale, taxpayer perception, third-party reporting, Engel curve
    JEL: H26
    Date: 2019–07
  2. By: Tamrie Atnafu, Worku; Gebretsadik Kalayou, Gebregziabhere; Gezae Huluf, Assefa
    Abstract: African governments are increasingly seeking to improve tax compliance in the pursuit of domestic revenue sources. Despite this trend, there is limited understanding of value added tax (VAT) compliance in Africa. In Ethiopia, increased VAT compliance is essential for the government to meet its ambitious domestic revenue goals. Therefore, we surveyed 652 Ethiopian VAT-registered businesses to better understand VAT compliance attitudes. Our study found that compliance is negatively affected by the time and effort required to file VAT. Additionally, registrants do not perceive a strong link between tax collection and adequate government service provision. As a result, we recommend a streamlined VAT filing and invoicing process that is digitized and available in the local language. We also recommend improved tax administrative support, training, and explanatory materials. Finally, our findings indicate that a demonstrated relationship between VAT collection and improved government service provision will positively influence compliance.
    Keywords: Economic Development, Finance, Governance,
    Date: 2019
  3. By: Waiswa, Ronald; Fekade, Sebsbie; Lake, Asnakech
    Abstract: The tax compliance behaviour of the public sector has been largely neglected in the tax literature. Other than appearing in tax laws as taxpayers, in practice the compliance strategies employed by revenue authorities do not sufficiently cater to government agencies. Enforcement of tax payments on these agencies is generally perceived to be a difficult undertaking and of less value than other priorities. One strategy to improve tax compliance in the public sector has been to separate them from other taxpayers and to provide them with special treatment. This strategy has been employed in Uganda, where it has been reportedly quite successful, and in Nigeria, where there is currently limited empirical evidence to evaluate its success. This paper aims to explore the compliance level of the public sector in Ethiopia, the legal and administrative challenges at the Ethiopian Revenue and Customs Authority (ERCA) to effectively tax public sector entities, and to assess whether segmenting the public sector from other taxpayers would be a relevant strategy in Ethiopia. The study finds that the compliance level of the public sector is wanting, especially in regards to remitting withheld taxes to ERCA. The bottleneck appears to be caused primarily by administrative weaknesses and less by gaps in existing tax laws. This study finds a number of administrative inefficiencies related to ERCA’s taxation of public sector entities, including: (1) the perception that enforcing tax laws on the public sector is a hard or even impossible task; (2) a fragmented VAT withholding system; (3) malfunctioning e-filing and e-payment systems; (4) limited taxpayer sensitisation campaigns; (5) low levels of automation; and (6) unsatisfactory tax services rendered. From the perspective of public sector taxpayers themselves, the study also finds a number of factors that undermine compliance, including: (1) a lack of sufficient care and attention to tax obligations among managers; (2) the fact that some government entities use a single taxpayer identification number (TIN) for many branches makes it difficult to trace transactions; and (3) the lack of supportive actions from political leaders. The study recommends the creation of a decentralised office to administer public sector taxation, conditional on the strong support of leaders from the revenue authority as well as other key government officials.
    Keywords: Economic Development, Finance, Governance,
    Date: 2019
  4. By: Akpan, Imaobong; Sempere, Kas
    Abstract: Why is gender and taxation in local markets important for Nigeria? The informal sector and informal market trading are central. The informal sector accounts for an estimated 64% of Nigeria’s GDP, while market and street vendors are key actors in African informal economies. In 2017, trade activities contributed to 18% of Nigeria´s GDP and delivered 14% of all employment. The informal (and trade) sector is feminised. In Nigeria, 61% of working women are engaged in informal sales and services compared to 39% of men. Additionally, 65% of the 10.8 million Nigerians employed in the trade industry in 2017 were women. No disaggregated data exists for this figure but given the proportion of women working in the informal sector in sub-Saharan Africa –89% according to UN Women, it is likely that many Nigerian women working in trade do so informally, including those working in local markets. Women stay longer in the informal sector. There are several reasons for this such as: lower levels of education, skills and training compared to men; the low entry requirements to enter and operate in the informal sector; the lower likelihood of women to have market know-how and own property; or the time due to family and community commitments. Summary of Working Paper 97 by Imaobong Akpan and Kas Sempere
    Keywords: Economic Development, Finance, Governance,
    Date: 2019
  5. By: Rangel, Felipe
    Abstract: More often than not, the idea of ‘informal commerce’ is associated with precariousness, informality, illegality, and poor product quality. This is the common representation of this market historically and systematically built based on everyday conversation, official discourse, and the media, which also tends to reinforce the aspects of insecurity and disorder of the spaces and marginality of those involved to describe it. Based on interviews, media coverage, and ethnographical observation of business practices carried out by a group of traders, the objective of this paper is to analyze the transformations this market has gone through in recent years and reflect upon the reasons for, and the effect of, new regulatory strategies that were put in place. I shall discuss this transformation in light of the concept of enterprisation of informal commerce (i.e., the application of enterprise models to such business activities), which have been transforming spaces, regulations, and even workers’ conducts, perceptions, and expectations. I hereby argument that regulatory strategies have been set forth based on a double narrative that responds to both economical exploitation interests and the discourse against certain illegal activities, and that this resulted in a process of labor gentrification.
    Keywords: informal commerce; São Paulo; Feirinha da Madrugada; Entrepreneurship; Enterprisation
    JEL: L81
    Date: 2019–06–04
  6. By: Santoro, Fabrizio; Mdluli, Winnie
    Abstract: For many reasons, the tax to GDP ratio in developing countries is still remarkably low. One of the key factors behind poor tax collection refers to low tax compliance. In this paper, we look at compliance with income tax in Eswatini. Eswatini shares the same tax performance of other sub-Saharan African countries: the tax to GDP ratio is about 15%. However, Eswatini collects proportionally more income tax, for around half of its total revenue. In this setting, we focus on a particular dimension of compliance: filing of nil returns by companies. We make use of anonymous administrative data provided by the Eswatini Revenue Authority (SRA) and map the extent of nil filing in the country. The main goal of this study is to shed light on an often un-explored topic in the literature. This exercise also represents the first robust and comprehensive analysis of nil returns within the SRA. To the best of our knowledge, this is the first work of this type in any low-income country. Summary of ATAP Working Paper 6 by Fabrizio Santoro and Winnie Mdluli.
    Keywords: Economic Development, Finance, Governance,
    Date: 2019
  7. By: Advani, Arun (University of Warwick ; the Institute for Fiscal Studies (IFS) ; the Tax Administration Research Center (TARC) ; and the Centre for Competitive Advantage in the Global Economy (CAGE)); Elming, William (IFS and TARC at the time of involvement in this work); Shaw, Jonathan (Financial Conduct Authority)
    Abstract: Understanding causes of and solutions to non-compliance is important for a tax authority. In this paper we study how and why audits affect reported tax in the years after audit – the dynamic effect – for individual income taxpayers. We exploit data from a random audit program covering more than 53,000 income tax self assessment returns in the UK, combined with data on the population of tax filers between 1999 and 2012. We first document that there is substantial non-compliance in this population. One in three filers underreports the tax owed. Third party information on an income source does not predict whether a taxpayer is non-compliant on that income source, though it does predict the extent of underreporting. Using the random nature of the audits, we provide evidence of dynamic effects. Audits raise reported tax liabilities for at least five years after audit, implying an additional yield 1.5 times the direct revenue raised from the audit. The magnitude of the impact falls over time, and this decline is faster for less autocorrelated income sources. Taking an event study approach, we further show that the change in reporting behaviour comes only from those found to have made errors in their tax report. Finally, using an extension of the Allingham-Sandmo (1972) model, we show that these results are best explained by audits providing the tax authority with information, which then constrains taxpayers’ ability to misreport.
    Keywords: tax audits ; tax revenue ; tax reporting decisions ; income tax ; self assessment ; HMRC
    JEL: D04 H26 H83
    Date: 2019
  8. By: Nicolas Jacquemet (CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne); 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 Malezieux (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); Jason Shogren (UW - University of Wyoming)
    Date: 2019–06–19
  9. By: Corwin, Julia Eleanor
    Abstract: This paper follows the return of electronic waste back into commodity circuits through widespread processes of reuse, repair and remanufacturing across Delhi, India. Tracing the movements of ?waste? from the scrap shop back into secondary use industries, I situate e-waste in India as operating primarily within economies of reuse and repair, rather than waste and recycling. Instead of managing waste, India?s broad reuse industries are production-based, maintaining and making new things out of a diversity of new and used materials. The production of value from used things is dependent on the e-waste trader and the repair worker, who see the potential for seemingly unlimited trajectories of multitudinous conditions and configurations. This view of e-waste from the repair shop (and even the scrap shop) rather than a recycling factory offers a very different rendering of e-waste and particularly informal e-waste labor in the Global South than is presented in policy and popular media. Building on scholarship on vibrant waste economies, I demonstrate that India?s electronic ?waste? sector is in fact a powerful source of value (and product) creation and call into question e-waste as a definitive ?waste? product and its management in a ?waste? economy.
    Keywords: electronic waste; reuse and repair; remanufacturing; informal economy; computers
    JEL: R14 J01
    Date: 2018–02–01

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