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on Informal and Underground Economics |
| By: | Rafael Dix-Carneiro (Duke University) |
| Abstract: | Motivated by recent work on the labor market effects of trade, we build a model of trade with labor market frictions and regulations that are not perfectly enforced. Heterogeneous firms decide whether to operate formally or informally, allowing for a link between globalization, informality and unemployment. We estimate the model using several data sources, including matched employer-employee data from formal and informal firms and workers in Brazil. We perform counterfactual analyses to understand how increasing trade openness affects informality, unemployment and welfare under different scenarios of labor market regulations and levels of enforcement. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:144&r=all |
| By: | Martín Caruso; Sebastian Galiani; Federico Weinschelbaum |
| Abstract: | Strategies based on growth and inequality reduction require a long-run horizon, and this paper therefore argues that those strategies need to be complemented by poverty alleviation programs. With regards to such programs, informality in Latin America and the Caribbean is a primary obstacle to carry out means testing income-support programs, and countries in the region have therefore mostly relied on proxy means testing mechanisms. This paper studies the relative effectiveness of these and other mechanisms by way of a formal model in which workers choose between job opportunities in the formal and informal sectors. Although the means testing mechanism allows for a more pro-poor design of transfers, it distorts labor decisions made by workers. On the other hand, (exogenous) proxy means testing does not cause distortions, but its pro-poor quality is constrained by the power of observable characteristics to infer income levels. However, since taxation is necessary to fund programs, redistribution becomes less effective, especially for programs other than means testing. The paper concludes by discussing the implications of these results for the design of more efficient targeting programs. |
| JEL: | I38 J38 O54 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26339&r=all |
| By: | Nicolas Jacquemet (PSE - Paris School of Economics); Stéphane Luchini (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Antoine Malezieux; Jason Shogren (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: | 2019–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02290402&r=all |
| By: | David Masclet (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes - CNRS - Centre National de la Recherche Scientifique, CIRANO - Centre interuniversitaire de recherche en analyse des organisations - UQAM - Université du Québec à Montréal); Claude Montmarquette (CIRANO - Centre interuniversitaire de recherche en analyse des organisations - UQAM - Université du Québec à Montréal); Nathalie Viennot-Briot (CIRANO - Centre interuniversitaire de recherche en analyse des organisations - UQAM - Université du Québec à Montréal) |
| Abstract: | There are many ways of tackling tax evasion. The traditional strategies implemented by tax authorities fight fiscal fraud through audits and penalties. However, there also exist a plethora of unconventional methods, such as whistleblower programs. Although there is rich economic literature on tax evasion, auditing and penalties, tax agencies‘ heavy reliance on whistleblower programs has mostly been ignored. We ran an experiment in which taxpayers can punish tax evaders by reporting them to the authorities, even though it is costly for them to do so and despite the lack of any material benefit from doing so. Information on other taxpayers' compliance rates together with the opportunity to report tax evaders have a positive and very significant effect on the level of income reported. Observing the compliance rates of other participants alone does not suffice to increase tax revenues. |
| Keywords: | fiscal fraud,whistleblowers,ambiguous risk,laboratory experiment. |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-02301968&r=all |
| By: | Norman Gemmell (School of Social and Cultural Studies, Victoria University, Wellington - School of Social and Cultural Studies, Victoria University, Wellington); Marisa Ratto (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine) |
| Abstract: | The ‘standard' Allingham-Sandmo-Yitzhaki (ASY) model of tax evasion predicts effects oncompliance which depend on the perceived probability of detection, tax rate and penalty forevasion. Compliance effects of detection probabilities and tax rates have been extensively testedempirically, but penalty effects are rarely tested explicitly. This paper examines the effects of latepayment penalties on tax compliance based on an experiment involving New Zealand goods andservice tax (GST) ‘late payers'. Firstly, based on an ASY-type model of tax late payments in whichthe probability of enforcement, rather than detection, is central, we develop a number of testablehypotheses. Secondly, based on a field experiment involving a specific compliance intervention, weexamine how taxpayers respond when given different penalty information. The experiment alsoallows us to consider differences between taxpayers' stated intentions to comply and subsequentlyobserved compliance. Results suggest that differences in penalty information given to taxpayersand reductions in penalty rates both affect taxpayers stated intentions to comply (pay overdue taxand penalties) as predicted. However, subsequently observed responses generally appearunresponsive to penalties. Nevertheless, various individual taxpayer characteristics are identifiablethat affect both compliance intentions and actual behaviour. |
| Keywords: | Tax evasion,late payment penalties,tax experiment,goods and service tax |
| Date: | 2019–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02302534&r=all |
| By: | Chengetai Dare; Ada Jansen; Sophia du Plessis |
| Abstract: | South Africa, like any other country, strives towards greater tax revenue mobilisation. One possible explanation to low revenue levels is non-compliance by taxpayers. Given its implications for the provision of public goods and services, the government has instituted various enforcement measures, including (among others) reprieves (amnesties and voluntary disclosure programmes) to delinquents who voluntarily disclose their previously unreported income. However, evidence on the efficacy of these measures show mixed responses in developed countries, making it imperative to analyse these policy measures in more depth for developing countries. Against this background, we examined taxpayers’ behavioural responses to once-off and permanent voluntary disclosure programmes. Using laboratory experiments, we found that both once-off and permanent voluntary disclosure programmes are effective in increasing compliance in the short-term, and only when they are accompanied by increased enforcement measures. The results also show that both once-off and permanent voluntary disclosure programmes (with or without increased enforcement) have insignificant long-term effects on compliance. Furthermore, a once-off voluntary disclosure programme is more effective than a permanent voluntary disclosure programme in stimulating compliance. As such, it is recommended that authorities avoid permanent voluntary disclosure programmes. |
| Keywords: | Voluntary Disclosure Programme, tax reprieve, compliance, tax evasion, laboratory experiment, taxpayers |
| JEL: | C91 H26 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:771&r=all |
| By: | Saavedra, S; Romero, M |
| Abstract: | Achieving a fair distribution of resources is one of the key goals of fiscal policy. To do this, governments often transfer tax resources from rich to marginalized areas. We study whether lower transfers dampen the incentives of local authorities to curb tax evasion in the context of mining in Colombia. To overcome the challenge of measuring evasion, we use machine learning on satellite images. Using differencein- differences strategies, we find that a reduction in the share of revenue transferred back to mining municipalities led to an increase in illegal mining. This result illustrates the difficulties of redistributing tax revenues. |
| Keywords: | Illegal Minig, Machine Learning |
| JEL: | H26 O13 O17 |
| Date: | 2019–10–02 |
| URL: | http://d.repec.org/n?u=RePEc:col:000092:017529&r=all |
| By: | Andersson, Jonas (Dept. of Business and Management Science, Norwegian School of Economics); Schroyen, Fred (Dept. of Economics, Norwegian School of Economics); Torsvik, Gaute (Dept. of Economics, University of Oslo) |
| Abstract: | In this paper we develop a model for tax amnesty applications in a multi-period setting. One key insight from the model is that applying for amnesty becomes more attractive at the moment when stricter enforcement is announced, even if the implementation of the policy is in the distant future. We use our model to make sense of how international tax information exchange agreements affects voluntary disclosure of wealth and income previously hidden in tax havens. Our data is from Norway. In accordance with the dynamic amnesty model we observe a strong announcement effect of a tax information exchange agreement between Norway and Switzerland and Luxembourg, the two most important tax havens for Norwegian tax evaders. However, the effect levels off very quickly, much faster than our model predicts. We think this is because the initial announcement of the tax agreement exaggerated the risk the agreement imposed to those who had hidden taxable income and wealth in Switzerland. We also estimate and find significant effects of the press releases the Norwegian Tax Authority issues to inform taxpayers about new international tax agreements and the amnesty, or voluntary disclosure, option that exists in the Norwegian tax code. |
| Keywords: | Tax Evasion; Tax Amnesty; Tax Information Exchange Agreement |
| JEL: | C22 C23 H26 H27 K34 |
| Date: | 2019–10–04 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhhfms:2019_012&r=all |
| By: | Cummins, Neil |
| Abstract: | Sharp declines in wealth-concentration occurred across Europe and the US during the 20th century. But this stylized fact is based on declared wealth. It is possible that today the richest are not less rich but rather that they are hiding much of their wealth. This paper proposes a method to measure this hidden wealth, in any form. In England, 1920-1992, elites are concealing 20-32% of their wealth. Among dynasties, hidden wealth, independent of declared wealth, predicts appearance in the Offshore Leaks Database of 2013-6, house values in 1999, and Oxbridge attendance, 1990-2016. Accounting for hidden wealth eliminates one-third of the observed decline of top 10% wealth-share over the past century. |
| Keywords: | Big Data; economic history; hidden wealth; inequality; tax evasion |
| JEL: | D31 H26 N00 N33 N34 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14020&r=all |