nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2020‒01‒13
four papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Shedding Light on the Shadow Economy: A Global Database and the Interaction with the Official One By Leandro Medina; Friedrich Schneider
  2. Potential of Personal Income Tax in Bangladesh: An Examination of Survey Data By Towfiqul Islam Khan; Muntaseer Kamal; Faiyaz Talukdar
  3. VAT tax gap prediction: a 2-steps Gradient Boosting approach By Giovanna Tagliaferri; Daria Scacciatelli; Pierfrancesco Alaimo Di Loro
  4. Price discrimination in bribe payments: Evidence from informal cross-border trade in West Africa By Sami Bensassi; Joachim Jarreau

  1. By: Leandro Medina; Friedrich Schneider
    Abstract: Using the multiple indicator-multiple cause (MIMIC) approach, this paper generates a novel global database by estimating the size of the shadow economy for 157 countries over 1991 to 2017. The results suggest that the OECD countries are by far the lowest with values below 20% of off official GDP and the shadow economy is larger in Latin America and Sub-Saharan Africa, averaging almost 38 and 39 percent of GDP, respectively. The average over all countries and over 1991 to 2017 is 30.9 %. What is really remarkable, that the average decline of the shadow economy from 1991 to 2017 is 6.8 percentage points. The shadow economy is particularly large in countries such as Bolivia (Georgia) with 62.9(61.7) percent of GDP, and low in countries such as Switzerland(United States) with 6.4 (7.6) percent of GDP, on average. Robustness tests include the use of satellite data on night lights intensity as a proxy for the size of countries’ economies and the comparison of the results with 23 countries national statistical offices’ measures of informality (discrepancy method used) demonstrate stable and similar results. Finally the interaction of the shadow economy with the official one is investigated. Theoretically the effect of the shadow economy on the official is an open question; first results of this interaction in Pakistan over 1976 to 2015 show a negative (positive) effect in the short (long) run.
    Keywords: shadow economy, informal economy, survey, multiple indicators multiple Causes (MIMIC), comparison of different estimation methods, the light intensity approach, shadow economy results for 157 countries, interaction of the shadow economy with the official
    JEL: C39 C51 C82 H11 H26
    Date: 2019
  2. By: Towfiqul Islam Khan; Muntaseer Kamal; Faiyaz Talukdar
    Abstract: Revenue mobilisation in Bangladesh has not been commensurate with its rapid economic growth. It is often regarded that, income tax evasion is high in Bangladesh, which undermines income equality and development finance. The present study seeks to create favourable policy space towards extracting untapped domestic resources through enhancing the efficiency of the tax administration with new information and analysis. To this end, the study estimates the potential of personal income tax in Bangladesh, based on successive rounds of Household Income and Expenditure Surveys conducted by the Bangladesh Bureau of Statistics. Furthermore, based on a nationwide perception survey conducted in 2018, this study attempts to identify the key determinants of public compliance regarding tax submission, including networks, societal norms, scope of punishment and enforcement on individuals’ tax compliance behaviour.
    Keywords: Income Tax, Revenue mobilisation, tax submission, tax compliance behaviour
    Date: 2019–06
  3. By: Giovanna Tagliaferri; Daria Scacciatelli; Pierfrancesco Alaimo Di Loro
    Abstract: Tax evasion is the illegal non-payment of taxes by individuals, corporations, and trusts. It results in a loss of state revenue that can undermine the effectiveness of government policies. One measure of tax evasion is the so-called tax gap: the difference between the income that should be reported to the tax authorities and the amount actually reported. However, economists lack a robust method for estimating the tax gap through a bottom-up approach based on fiscal audits. This is difficult because the declared tax base is available on the whole population but the income reported to the tax authorities is generally available only on a small, non-random sample of audited units. This induces a selection bias which invalidates standard statistical methods. Here, we use machine learning based on a 2-steps Gradient Boosting model, to correct for the selection bias without requiring any strong assumption on the distribution. We use our method to estimate the Italian VAT Gap related to individual firms based on information gathered from administrative sources. Our algorithm estimates the potential VAT turnover of Italian individual firms for the fiscal year 2011 and suggests that the tax gap is about 30% of the total potential tax base. Comparisons with other methods show our technique offers a significant improvement in predictive performance.
    Date: 2019–12
  4. By: Sami Bensassi (Birmingham Business School - University of Birmingham [Birmingham]); Joachim Jarreau (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine)
    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 coss-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 find 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 officials use their monopoly power to extract transfers from traders.
    Keywords: Informal trade,Corruption,Trade policy
    Date: 2019

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