nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2019‒08‒12
eight papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Slippery slope framework, tax morale and tax compliance: a theoretical integration and an empirical assessment By Gaetano Lisi
  2. Perceptions of VAT Compliance in Ethiopia By Tamrie Atnafu, Worku; Gebretsadik Kalayou, Gebregziabhere; Gezae Huluf, Assefa; Anderson, Colin
  3. Political Alignment, Attitudes Toward Government and Tax Evasion By Cullen, Julie Berry; Turner, Nick; Washington, Ebonya L
  4. Enhancing Property Rates Administration, Collection and Enforcement in Uganda: The Case of Kampala Capital City Authority (KCCA) and four other Municipalities By Bakibinga, David; Ngabirano, Dan
  5. Price Discrimination in Bribe Payments: Evidence from Informal Cross-Border Trade in West Africa By Sami Bensassi; Joachim Jarreau
  6. Reformatory Policies and Factor Prices in a Developing Economy with Informal Sector By Mandal, Biswajit; Ghosh, Sujata
  7. Informality and the Challenge of Pension Adequacy: Outlook and Reform Options for Peru By Christoph Freudenberg; Frederik Toscani
  8. The impact of e-wallet on informal farm entrepreneurship development in rural Nigeria By Joseph I. Uduji; Elda N. Okolo-Obasi; Simplice A. Asongu

  1. By: Gaetano Lisi (University of Cassino)
    Abstract: Many empirical works confirmed the capacity of the "slippery slope" framework and tax morale in explaining tax compliance. So far, however, very few studies tried to fully integrate these two main behavioral approaches to understanding tax compliance. Indeed, a theoretical underpinning is still missing. In this paper, therefore, we first introduce tax morale and the “slippery slope” framework into an economic model of taxpayer’s behavior and then we test it empirically. We find that for increasing overall tax compliance, voluntary tax compliance (trust and tax morale) is more effective than enforced tax compliance. Eventually, from a policy point of view, we suggest a strategy based on rewards for honest taxpayers.
    Keywords: tax compliance, tax evasion, voluntary tax compliance, tax morale, enforced tax compliance
    JEL: H26 H3 K42 D22
    Date: 2019–07
  2. By: Tamrie Atnafu, Worku; Gebretsadik Kalayou, Gebregziabhere; Gezae Huluf, Assefa; Anderson, Colin
    Abstract: Tax is a major source of government revenue. Many countries prioritise mobilising domestic resources to finance government spending. However, many factors influence the revenue generated by taxation, including the population’s level of compliance with tax expectations. A country’s ability to raise funds from tax depends on the level of tax compliance. Tax compliance refers to complex attitudinal issues towards all types of tax. This paper explores attitudes to compliance with value added tax (VAT) among those registered for VAT in Addis Ababa, Ethiopia. There is a high possibility of non-compliance with VAT for several reasons. These include how often tax returns have to be completed, numerous calculations that have to be done along with evidence that need to be produced, and complications in the system of refunds and exemption.
    Keywords: Economic Development, Finance, Governance,
    Date: 2019
  3. By: Cullen, Julie Berry; Turner, Nick; Washington, Ebonya L
    Date: 2018–02–01
  4. By: Bakibinga, David; Ngabirano, Dan
    Abstract: Uganda was among the first African countries to embrace a decentralised system of government in the 1990s. The objective of this policy was to bring services closer to the people while at the same time enhancing local participation and democracy. The success of decentralisation was, however, greatly dependent on the amount of funds and other resources available to local governments. Before it was scrapped, graduated tax – a form of poll tax – contributed a significant part of local government own source revenue. Following its abolition, local service and local hotel taxes were introduced to compensate for the loss in revenue. Recent studies, however, show that collections from these two taxes are highly inadequate and that local governments are highly dependent on central government grants in running their operations. This undermines the whole essence of decentralisation which, among other things, aims at strengthening the autonomy of local governments. Be that as it may, the recent population surge and boom in urban areas especially has seen property rates emerge as an important source of own source funding for local governments. The challenge, however, is that while property rates present a huge potential for closing the existing funding gap in most local governments, they are for the most part poorly enforced. Using experiences from the Kampala Capital City Authority (KCCA) and four other municipalities, this paper makes a case for reform of the property rates regime in Uganda. This includes proposals for the amendment of the law to remove exemptions for owner-occupied property, imposing rates on vacant urban land, using ICT processes in collection and enforcement, creating revenue collection units in municipalities, and setting up ratepayers associations to engage the urban authorities on effective collection and use of property rates.
    Keywords: Economic Development, Finance, Governance,
    Date: 2019
  5. By: Sami Bensassi (University of Birmingham); Joachim Jarreau (PSL Université Paris-Dauphine, PSL Research University, IRD, LEDa, DIAL, Paris, France.)
    Abstract: What factors explain the persistence and pervasiveness of corruption in certain parts of the world? In West Africa, many day-to-day transactions require the payment of bribes. Quantitative evidence on these bribes and their determinants is scarce. This paper sheds light on the level and the frequency of bribe payments in informal cross-border trade. It examines how bribes depend on the trade regime and on market structure. We rely on data from a survey of traders in Benin to estimate the determinants of bribe payments. We exploit variations in the trade regime across Benin's borders, as well as changes in trade restrictions over time and variations in route availability across space and time. We nd that reductions in trade barriers help to lower bribes, but do not eliminate them, with bribes remaining frequent in liberalized trade regimes. These results suggest that collusive corruption - used to circumvent regulations and taxes - coexists with coercive corruption, where ocials use their monopoly power to extract transfers from traders.
    Keywords: Informal trade, corruption, trade policy.
    JEL: O17 F14 F15
    Date: 2019–06
  6. By: Mandal, Biswajit; Ghosh, Sujata
    Abstract: Effects of different reformatory policies have always been a pulsating concern for the researchers and policy makers. Considering this concern, this paper attempts to check various effects of reformatory policies such as labor market reform, tariff cut, change in subsidy, bureaucratic reform in a typical small open economy comprising of both formal and informal sectors. It has been found that the implications of labor market reform and tariff liberalization for factor prices and wage disparity are distinctly opposite. However, skilled labor of the economy benefits from both labor market reform and export subsidy. Next we extend the basic model to bring in related corruption in the informal sector for its illegal nature. This calls for the existence of a sector which helps hassle free informal production. There we find that unskilled workers lose owing to both bureaucratic reform and labor market reform. Nevertheless, though traditionally labor market reform is supposed to harm workers, wage disparity gets ameliorated whereas tariff reform leads to worsening of it.
    Keywords: International Trade,Wages,General Equilibrium,Economic Policy,Informal Sector,Extortion
    JEL: F1 J31 D5 F11 D73
    Date: 2019
  7. By: Christoph Freudenberg; Frederik Toscani
    Abstract: Past reforms have put the Peruvian pension system on a largely fiscally sustainable path, but the system faces important challenges in providing adequate pension levels for a large share of the population. Using administrative microdata at the affiliate level, we project replacement rates in the defined benefit (DB) and defined contribution (DC) pillars over the next 30 years and simulate the impact of various reform scenarios on the average level and distribution of pensions. In the DB pillar, the regressive minimum contribution period should be re-thought, while in the DC pillar a broadening of the contribution base and/or an increase in contribution rates would help increase replacement rates relative to the baseline forecast of 25-33 percent. A higher net real rate of return than assumed in the baseline would also have a significant positive impact. In the medium-term, labor market reform to tackle informality, and a broad pension reform to restructure the system and avoid competition between the DB and DC pillars should be a priority. Given low pension coverage, having a strong non-contributory pillar will remain important for the foreseeable future.
    Date: 2019–07–11
  8. By: Joseph I. Uduji (University of Nigeria, Nsukka, Nigeria); Elda N. Okolo-Obasi (University of Nigeria, Nsukka, Nigeria); Simplice A. Asongu (Yaoundé, Cameroon)
    Abstract: Transforming agriculture from a largely subsistence enterprise to a profitable commercial venture is both a prerequisite and a driving force for accelerated development and sustainable growth in sub-Saharan Africa. The objective of this investigation is to assess the impact of the Federal Government of Nigeria (FGN) e-wallet programme on informal farm entrepreneurship development in rural Nigeria. Informal sector farmers are those that are not legally registered at the national level though could be connected to a registered association. The research is motivated by the absence of literature focusing on the problem statement or objective of study. One thousand, one hundred and fifty-two rural farmers were sampled across the six geo-political zones of Nigeria. Results from the use of a bivariate probit model indicate that the mobile phone-based technology via the e-wallet programme is a critical factor that has enhanced farm entrepreneurship in rural Nigeria. However, results also show that the impact of mobile phones (as a channel to accessing and using modern agricultural inputs) is contingent on how mobile networks are able to link farmers who live in rural areas and work mainly in farming. The results suggest that increasing mobile phone services in rural Nigeria enhances farmers’ knowledge, information and adoption of improved farm inputs and by extension, spurs rural informal sector economic activities in sub-Saharan Africa. Implications for practice, policy and research are discussed.
    Keywords: Informal sector’s adoption, electronic wallet technologies
    JEL: Q10 Q14 L96 O40 O55
    Date: 2018–01

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