nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2020‒03‒09
seven papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Shadow effect from Laffer tax allergy: New tax policy tool to fight tax evasion By DOMBOU T., Dany R.
  2. VAT Compliance Incentives By Maria-Augusta Miceli
  3. Voice and Punishment : A Global Survey Experiment on Tax Morale By Sjoberg,Fredrik Matias; Mellon,Jonathan; Peixoto,Tiago Carneiro; Hemker,Johannes Zacharias; Tsai,Lily Lee
  4. Informality, Harassment, and Corruption : Evidence from Informal Enterprise Data from Harare, Zimbabwe By Francis,David C.
  5. Formal Employment and Organized Crime: Regression Discontinuity Evidence from Colombia By Gaurav Khanna; Carlos Medina; Anant Nyshadham; Jorge Tamayo
  6. Microentrepreneurship in Developing Countries By Seema Jayachandran;
  7. Assessing Urban Policies Using a Simulation Model with Formal and Informal Housing : Application to Cape Town, South Africa By Pfeiffer,Basile Fabrice; Rabe,Claus; Selod,Harris; Viguie,Vincent

  1. By: DOMBOU T., Dany R.
    Abstract: This study is inspired by the Laffer curve to develop and formalize a concept around optimal tax policy considering asymmetric information. This is the "Shadow effect". This theory states that when the tax burden is high, producers tend to inflate their fictitious expenses in order to reduce their declared profit (in order to avoid paying a high tax). The theoretical developments show that the propensity of producers to the Shadow effect is positively related to the square of tax rate. The relationship is non-linear. They also show that there is an inverse and non-linear relationship between the tax rate and the level of production. In addition, producers' sensitivity to the Shadow Effect can be influenced by fluctuating the tax burden. This study provides to governments a new fiscal policy tool. For instance, a numerical application has shown that if the Cameroonian government wants to encourage production in such a way that it could reach 50% more, it should reduce the corporate tax rate down ceteris paribus, to 16.19%.
    Keywords: Tax evasion; Tax burden; Laffer Curve; Shadow effect.
    JEL: D8 H21 H26
    Date: 2018–11
  2. By: Maria-Augusta Miceli
    Abstract: In this work I clarify VAT evasion incentives through a game theoretical approach. Traditionally, evasion has been linked to the decreasing risk aversion in higher revenues (Allingham and Sandmo (1972), Cowell (1985) (1990)). I claim tax evasion to be a rational choice when compliance is stochastically more expensive than evading, even in absence of controls and sanctions. I create a framework able to measure the incentives for taxpayers to comply. The incentives here are deductions of specific VAT documented expenses from the income tax. The issue is very well known and deduction policies at work in many countries. The aim is to compute the right parameters for each precise class of taxpayers. VAT evasion is a collusive conduct between the two counterparts of the transaction. I therefore first explore the convenience for the two private counterparts to agree on the joint evasion and to form a coalition. Crucial is that compliance incentives break the agreement among the transaction participants' coalition about evading. The game solution leads to boundaries for marginal tax rates or deduction percentages, depending on parameters, able to create incentives to comply The stylized example presented here for VAT policies, already in use in many countries, is an attempt to establish a more general method for tax design, able to make compliance the "dominant strategy", satisfying the "outside option" constraint represented by evasion, even in absence of audit and sanctions. The theoretical results derived here can be easily applied to real data for precise tax design engineering.
    Date: 2020–02
  3. By: Sjoberg,Fredrik Matias; Mellon,Jonathan; Peixoto,Tiago Carneiro; Hemker,Johannes Zacharias; Tsai,Lily Lee
    Abstract: An online survey experiment spanning 50 countries finds sizable improvements in tax morale when (a) the salience of anti-corruption efforts is increased and (b) citizens are allowed to voice their expenditure preferences to the government. These results hold very broadly across a uniquely large and diverse sample of respondents from all continents. The findings are consistent with theories emphasizing the role of democratic accountability, as well as of perceptions of legitimacy and"retributive justice,"in generating voluntary tax compliance. Implications and avenues for further research are discussed.
    Keywords: Tax Administration,Taxation&Subsidies,Macro-Fiscal Policy,Economic Adjustment and Lending,Legal Products,Judicial System Reform,Youth and Governance,Legal Reform,Legislation,Regulatory Regimes,Public Sector Economics,Public Finance Decentralization and Poverty Reduction,Government Policies,National Governance,Social Policy,Tax Law
    Date: 2019–05–15
  4. By: Francis,David C.
    Abstract: New representative survey data for Harare, Zimbabwe are used to analyze the conditions under which informal businesses encounter requests for bribes. A simple model develops basic expectations of bribe exposure: those with higher opportunity costs of formalizing and with a higher ability to pay (resources) are expected to face a higher bribe risk. Empirical results find that informal businesses operating out of necessity are likelier to have a bribe demanded of them. Robustness checks are performed to account for the endogeneity of the main regressors, through a bivariate probit specification, using an instrumental variable of whether an informal business owner started in the area of activity before the country's 2009 dollarization. Limited significant results are found for the effect of revenues (ability to pay).
    Keywords: Labor Markets,Employment and Unemployment,Secondary Education,Educational Sciences
    Date: 2019–06–26
  5. By: Gaurav Khanna (University of California - San Diego); Carlos Medina (Banco de la Republica de Colombia); Anant Nyshadham (University of Michigan; NBER); Jorge Tamayo (Harvard Business School)
    Abstract: Canonical models of crime emphasize economic incentive. Yet, causal evidence of sorting into criminal occupations in response to individual-level variation in incentives is limited. We link administrative socioeconomic microdata with the universe of arrests in Medellín over a decade. We exploit exogenous variation in formal-sector employment around a socioeconomic-score cutoff, below which individuals receive benefits if not formally employed, to test whether a higher cost to formal-sector employment induces crime. Regression discontinuity estimates show this policy generated reductions in formal-sector employment and a corresponding spike in organized crime, but no effects on crimes of impulse or opportunity.
    Keywords: organized crime, informality, occupational choice, gangs, Medellin
    JEL: K42 J46 J24
    Date: 2019–10–31
  6. By: Seema Jayachandran;
    Abstract: This article reviews the recent literature in economics on small-scale entrepreneurship (“microentrepreneurship”) in low-income countries. Major themes in the literature include the determinants and consequences of joining the formal sector; the impacts of access to credit and other financial services; the impacts of business training; barriers to hiring; and the distinction between self-employment by necessity and self-employment as a calling. The article devotes special attention to unique issues that arise with female entrepreneurship.
    JEL: L26 J16 J24
    Date: 2020
  7. By: Pfeiffer,Basile Fabrice; Rabe,Claus; Selod,Harris; Viguie,Vincent
    Abstract: Building on a two-dimensional discrete version of the standard urban economics land-use model, this paper presents a tractable urban land-use simulation model that is adapted to developing country cities, where formal and informal housing submarkets coexist. The dynamic closed-city framework simulates developers'construction decisions and heterogeneous households'housing and location choices at a distance from various employment subcenters, while accounting at the same time for land-use regulations, natural constraints, exogenous amenities, and dynamic scenarios of urban population growth and of State-driven subsidized housing. Designed and calibrated for Cape Town, the model is used to assess the impact of an urban growth boundary and of changes in the scale of subsidized housing schemes, informing a discussion of the potential trade-offs in policy objectives and of policy effectiveness.
    Keywords: Municipal Management and Reform,Urban Housing and Land Settlements,Urban Housing,Urban Governance and Management,Transport Services,Urban Economic Development,City to City Alliances,Urban Economics,National Urban Development Policies&Strategies,Urban Communities,Regional Urban Development,Labor Markets
    Date: 2019–06–27

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