nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2020‒01‒20
ten papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Explaining the Shadow Economy in Europe: Size, Causes and Policy Options By Ben Kelmanson; Koralai Kirabaeva; Leandro Medina; Borislava Mircheva; Jason Weiss
  2. New Evidence on the Size and Drivers of the Shadow Economy in Spain: A Model Averaging Approach By Rios, Vicente
  3. Tax evasion and unaccounted incomes: A theoretical approach. By Sapre, Amey
  4. Misreported Trade By Mohammad Farhad; Michael Jetter; Abu Siddique; Andrew Williams
  5. Hidden Treasure: The Impact of Automatic Exchange of Information on Cross-Border Tax Evasion By Sebastian Beer; Maria Delgado Coelho; Sebastien Leduc
  6. Informal Employment By Jackson, Emerson Abraham
  7. Informality and Bank Stability By Gareth Lui-Evans; Shalini Mitra
  8. The Effect of the Introduction of Online Cash Registers on Reported Turnover in Hungary By Gábor Lovics; Katalin Szõke; Csaba G. Tóth; Bálint Ván
  9. Quantitative Series: Factors Analysis Effects of Government Regulation Number 46 the Year 2013 For SME’s by Justice, Convenience, and Simplicity of Tax Aspects By Justice, Substantive; Aswari, Aan; Perdana, Aditya Halim
  10. The Operation of an Informal Market: Bolgatanga’s Goat Market By Rancatore, Jason

  1. By: Ben Kelmanson; Koralai Kirabaeva; Leandro Medina; Borislava Mircheva; Jason Weiss
    Abstract: This paper examines the drivers, and reestimates the size of shadow economies in Europe, with a focus on the emerging economies, and recommends policies to increase formality. The size of shadow economies declined across Europe in recent years but remains significant, especially in Eastern Europe. In the emerging European economies, the key determinants of shadow economy size are regulatory quality, government effectiveness, and human capital. The paper argues that a comprehensive package of reforms, focused on country-specific drivers, is needed to successfully combat the shadow economy. The menu of policies most relevant for Europe’s emerging economies include: reducing regulatory and administrative burdens, promoting transparency and improving government effectiveness, as well as improving tax compliance, automating procedures, and promoting electronic payments.
    Date: 2019–12–13
  2. By: Rios, Vicente
    Abstract: This study investigates the evolution of the shadow economy in Spain during the period 1986-2016 using the Currency Demand Approach by means of Bayesian Model Averaging econometric techniques. The results of the empirical analysis suggest that the average share of the underground economy as a percentage of the GDP during 1986-2016 was the 18.2% whereas in 2016, the estimated size was the 11.95%. The estimated figures for the period under consideration are in line with the averaged estimates of previous studies for the same time frame. Nevertheless, a remarkable difference between previous analysis and the estimated pattern stemming from this study is that the size of the shadow economy depicts an inverted U shape time profile, with a marked reduction in the years after the Great Recession. With the estimates of the shadow economy in hand, the importance of the drivers of the shadow economy in Spain is investigated by means of Bayesian Model Averaging methods. The main finding of this analysis is that the key factors driving variations in the size of the shadow economy are the taxes, the level of education and the distribution of employment across sectors.
    Keywords: Shadow Economy, Spain, Currency Demand, Bayesian Model Averaging
    JEL: C11 H11 H26 K42
    Date: 2019–07
  3. By: Sapre, Amey (National Institute of Public Finance and Policy)
    Abstract: This paper analyzes the problem of tax evasion by incorporating a simple game theoretic framework wherein an individual is confronted with the decision of declaring income for taxation. The model is a re-formulation of Allingham Sandmo (1972) and Srinivasan (1973) original single period decision making problem and extends it to to a repeated game involving a tax payer and a tax authority. The game theoretic results shows that probability of audit and penalty rate are inversely related and that beyond a threshold penalty rate, the tax payer has no incentive to evade. In an infinitely repeated game setting, first, the threat of audit in all future periods acts as a deterrent to evasion and second, the result provides some intuitive understanding of the role of patience and equilibrium strategies in a long repetitive engagement that supports cooperation and prevents deviations.
    Keywords: Tax evasion ; Repeated game ; Public Finance
    JEL: C73 H26
    Date: 2019–12
  4. By: Mohammad Farhad; Michael Jetter; Abu Siddique; Andrew Williams
    Abstract: We propose a methodology to measure misreported trade across countries and over time in a consistent and comparable manner. Our methodology does not require a priori assumptions about which countries may be more or less likely to misreport. We derive seven indices on overall misreporting, as well as over- and under-reporting of trade, exports, and imports. Exploring bilateral trade data from 1996-2015, we derive country and product rankings and discuss prominent cases, such as China. We conclude with an application, documenting positive and statistically meaningful correlations of tariff and VAT rates with our import under-reporting index, even after controlling for potentially confounding factors.
    Keywords: international trade, trade misreporting, tariff evasion
    JEL: D73 F13 F14 H26
    Date: 2019–08
  5. By: Sebastian Beer; Maria Delgado Coelho; Sebastien Leduc
    Abstract: We analyze the impact of exchange of information in tax matters in reducing international tax evasion between 1995 and 2018. Based on bilateral deposit data for 39 reporting countries and more than 200 counterparty jurisdictions, we find that recent automatic exchange of information frameworks reduced foreign-owned deposits in offshore jurisdictions by an average of 25 percent. This effect is statistically significant and, as expected, much larger than the effect of information exchange upon request, which is not significant. Furthermore, to test the sensitivity of our findings, we estimate countries’ offshore status and the impact of information exchange simultaneously using a finite mixture model. The results confirm that automatic (and not upon request) exchange of information impacts cross-border deposits in offshore jurisdictions, which are characterized by low income tax rates and strong financial secrecy.
    Date: 2019–12–20
  6. By: Jackson, Emerson Abraham
    Abstract: The myth surrounding negative connotation of informal employment / informal economy work engagement is one that needs to be revisited as research ventures must be pursued in the direction of encouraging those engaged in it to feel quite elated about their boldness in becoming actively involved in economic development activities. Equally, sensitive approaches should be pursued in pursuance of government statutory obligations in addressing core services like expenditures connected with education and health for example, which can only be achieved through revenue raised from genuine contributions made by the workforce, be it through formal or informal work engagement.
    Keywords: Informal Economy, Underground Economy, Shadow Economy
    JEL: E23 E24 E26
    Date: 2019–11–15
  7. By: Gareth Lui-Evans; Shalini Mitra
    Abstract: While financial development (FD) has been widely studied in the literature as a determinant of informal sector size, there has been no focus on the role of financial stability. We find that the stability of the banking sector has a significant and robust negative effect on informality across countries. Using a recently available testing methodology based on a heteroskedasticityrobust lasso we also find strong support for Rule of Law as a key determinant of informal sector size, and some evidence for the effect of FD
    Keywords: Informality, bank stability, financial development, rigorous Lasso, rule of law
    Date: 2019–08
  8. By: Gábor Lovics (Központi Statisztikai Hivatal (Hungarian Central Statistical Office)); Katalin Szõke (Magyar Nemzeti Bank (Central Bank of Hungary)); Csaba G. Tóth (KSH Népességtudományi Kutatóintézet (Hungarian Demographic Research Institute)); Bálint Ván (Pénzügyminisztérium (Ministry of Finance))
    Abstract: In order to reduce the shadow economy, in 2013 and 2014 the Hungarian government introduced mandatory online cash registers (OCR) in some sectors. As a result, almost 200,000 OCRs have been installed by 100,000 enterprises. In this paper we use micro data to estimate the effect of OCR introduction on reported turnover in the most affected sectors: retail, and accommodation and food services (AFS). We assume that OCR installation does not change a company’s operating model, so the increase in reported turnover around the installation date reflects a reduction in the shadow economy. We identify a remarkable effect of OCR introduction on reported turnover in both sectors. For small enterprises, reported turnover increased by 23 percent and 35.1 percent in the retail and AFS sector, respectively. We also find significant but smaller effects for medium-sized enterprises in both sectors. For large companies, we only observe a significant impact in the AFS sector.
    Keywords: Value Added Tax, Tax Evasion, Shadow Economy
    JEL: E26 H25 H26
    Date: 2019
  9. By: Justice, Substantive; Aswari, Aan (Faculty of Law); Perdana, Aditya Halim
    Abstract: PUBLISHED IN WWW.SUBSTANTIVEJUSTICE.ID (July 20, 2018) In 2013 the business circle was struck by the new tax rules, namely Government Regulations PP No. 46, 2013 on taxation regulations among UKM (SME’s) / Small Medium Enterprises but the strong allegations issued PP 46 of 2013 is because the potential tax revenue from the sector of UKM has not been explored to the fullest. By the required by the taxpayer related PP. No. 46 of 2013 uses several variables, namely taxes, taxes, taxes and tax benefits. The object of this research is the perpetrators of UKM (SMEs) in Makassar City who do 40 people using quantitative analysis and quantitative analysis. The result of this research indicates that the perception of justice tax has a significant effect as well as the most dominant variable affecting taxpayer compliance, taxability perception has a significant adverse impact on taxpayer compliance, tax perception simplicity has no significant impact, taxpayer's judgment is not valid in testing. The overall coefficient of determination contributes 26.5%.
    Date: 2018–07–19
  10. By: Rancatore, Jason
    Abstract: Research on price trends in informal markets relies on visits to these sites and utilizing some kind of survey instrument. This paper begins with a broader question and adopts a more grounded strategy, asking: what are some elements of an informal commodity market in a developing country, such as a goat market, that can be identified in an ethnographic approach? Based on 18 months of field observations, the paper narrates the presence or absence of formal documentation and informal rules across three categories (price, care, and transportation) at its case study site of the goat market in Bolgatanga, Ghana. It finds that there is an almost complete lack of standard documentation seen in the everyday life of developed countries. It also notes the relatively stable, yet informal, practices with respect to bargaining and exchange and organized transportation to a point of sale. These social and cultural practices are likely important to any planned adjustment or intervention to ensure food security or simply improved market operation.
    Date: 2018–11–09

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