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on Informal and Underground Economics |
| By: | Aziz Berdiev; Rajeev K. Goel; James W. Saunoris |
| Abstract: | Adding to the emerging body of research related to the current coronavirus crisis, this paper studies the impact of disease epidemics on the worldwide prevalence of the shadow or the underground economy. The informal sector undermines compliance with government regulations and lowers tax collections. Our main hypothesis is that epidemics positively impacts the spread of the shadow economy. Using data on nearly 130 nations and nesting the empirical analysis in the broader literature on the drivers of the shadow sector, we find that both the incidence and the intensity of epidemics positively and significantly contribute to the spread of the underground sector. Numerically, a ten percent increase in the intensity of epidemics leads to an increase in the prevalence of the shadow economy by about 2.1 percent. These findings about the spillovers from epidemics have implications for economic policies in the current times of coronavirus. |
| Keywords: | shadow economy, epidemics, COVID-19, government, economic development |
| JEL: | I15 K42 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8425&r=all |
| By: | Bandyopadhyay, Subhayu (Federal Reserve Bank of St. Louis); Basu, Arnab K. (Cornell University); Chau, Nancy H. (Cornell University); Mitra, Devashish (Syracuse University) |
| Abstract: | We present a model of offshoring of tasks to a developing nation, which is characterized by a minimum wage formal sector and a flexible wage informal sector. Some offshored tasks are outsourced by the formal sector to the lower wage informal sector. An improvement in the productivity in performing offshored tasks in the developing country raises offshoring, but not necessarily formal-to-informal outsourcing, and, in response, the developed nation wage can fall. Productivity improvements in the informal sector expand both offshoring and outsourcing, and the developed nation wage must rise. When the minimum wage is reduced, the developed nation wage falls when most of the efficiency gains accrue to the informal sector. |
| Keywords: | offshoring, outsourcing, informal sector, dual labor markets |
| JEL: | F1 F2 J4 J8 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13420&r=all |
| By: | Johannesen, Niels; Langetieg, Patrick; Reck, Daniel; Risch, Max; Slemrod, Joel |
| Abstract: | In 2008, the IRS initiated efforts to curb the use of offshore accounts to evade taxes. This paper uses administrative microdata to examine the impact of enforcement efforts on taxpayers’ reporting of offshore accounts and income. We find that enforcement caused approximately 50,000 individuals to disclose offshore accounts with a combined value of about $100 billion. Most disclosures happened outside offshore voluntary disclosure programs, by individuals who never admitted prior noncompliance. Disclosed accounts were concentrated in countries often characterized as tax havens. Enforcement-driven disclosures increased annual reported capital income by $2-$4 billion, corresponding to $0.6-$1.2 billion in additional tax revenue. |
| JEL: | H24 H26 K34 |
| Date: | 2020–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:105864&r=all |
| By: | Jeong-Dae Lee (Macroeconomic Policy and Financing for Development Division, UNESCAP) |
| Abstract: | In response to offshore tax evasion, governments have introduced new tax treaties to facilitate the exchange of financial account information between jurisdictions, including traditional tax havens. Based on international banking statistics, I examine whether these treaties have had a material impact on offshore evasion. Based on panel regression analysis, I find that cross-border deposits in traditional haven jurisdictions, taken as a proxy for offshore evasion in the literature, have declined substantially. However, I also find that these offshore assets are being relocated to few non-compliant tax havens and moreover, “non-haven” offshore financial centres, most notably the United States, which has yet to commit to reciprocal and automatic exchange of information and establish a public register of ultimate beneficial ownership. |
| Keywords: | tax evasion, tax haven, exchange of information |
| JEL: | H26 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:unt:wpmpdd:wp/19/07&r=all |
| By: | Hoy, Christopher (Australian National University); McKenzie, Luke (Australian National University); Sinning, Mathias (Australian National University) |
| Abstract: | This paper studies the impact of "nudges" on taxpayers with varying tax compliance histories in Papua New Guinea. We present the results from two population-wide randomized controlled trials in a setting that is characterized by low compliance rates and a lack of effective enforcement. We test the impact of text messages, flyers and emails that remind taxpayers of declaration due dates and provide information about the public benefits from paying tax. We find that the treatments increased the number of tax declarations filed without increasing the amount of tax paid because the taxpayers who responded to the nudges were largely exempt from paying tax. This result is consistent across tax types, communication channels and time periods. We also find that the treatments had no impact on previously non-filing taxpayers. Collectively, our results indicate that taxpayers who face the lowest cost from complying are most likely to respond to a nudge. |
| Keywords: | tax compliance, field experiments, behavioral economics |
| JEL: | C93 D91 H2 H20 O1 O17 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13407&r=all |
| By: | Cyril Chalendard; Alice Duhaut; Ana Margarida Fernandes; Aaditya Mattoo; Gael Raballand; Bob Rijkers |
| Abstract: | This paper examines how providing better information to customs inspectors and monitoring their actions affects tax revenue and fraud detection in Madagascar. First, an instrumental variables strategy is used to show that transaction-specific, third-party valuation advice on a subset of high-risk import declarations increases fraud findings by 21.7 percentage points and tax collection by 5.2 percentage points. Second, a randomized control trial is conducted in which a subset of high-risk declarations is selected to receive detailed risk comments and another subset is explicitly tagged for ex-post monitoring. For declarations not subject to third-party valuation advice, detailed comments increase reporting of fraud by 3.1 percentage points and improve tax yield by 1 percentage point. However, valuation advice and detailed comments have a significantly smaller impact on revenue when potential tax losses and opportunities for graft are large. Monitoring induces inspectors to scan more shipments but does not result in the detection of more fraud or the collection of additional revenue. Better information thus helps curb customs fraud, but its effectiveness appears compromised by corruption. |
| Keywords: | tariff evasion, tax enforcement, third-party information, performance monitoring, risk management, information provision, randomized control trial |
| JEL: | D73 F14 H26 K42 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8371&r=all |
| By: | Ashworth, J.; Goodhart, C. A. E. |
| Abstract: | Currency usage began a long trend decline in the decades after World War II. This was expected to continue, and even accelerate, owing to payment technology innovations. Surprisingly, however, such usage as a percentage of GDP stopped falling and has increased quite sharply in recent years in most countries, with Sweden the major outlier. We examine to what extent this may have been due to increasing interest elasticity, nearing the zero lower bound, and also to rising tax evasion, as indirect taxes rise. We also show how currency holdings increased temporarily as the financial crisis struck in 2008. |
| Keywords: | currency; interest elasticity; financial crisis; Grey economy; tax evasion |
| JEL: | E40 E49 E63 H26 N10 N20 |
| Date: | 2020–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:105303&r=all |
| By: | Resnick, Danielle; Sivasubramanian, Bhavna |
| Abstract: | How do cities build a social contract with their diverse constituencies and foster political trust among the urban poor? This study focuses on informal traders, who constitute a major source of food security and employment in urban Africa. Centered on Ghana’s three main cities, we analyze interviews with metropolitan policymakers and a survey of approximately 1,200 informal traders. The findings show that expectations about reciprocity and procedural justice play a key role in shaping the probability of trusting one’s local government. Lower levels of trust were associated with disappointment over the lack of benefits that accompany tax payments to local assemblies. Moreover, those who had experienced harassment by city authorities were less likely to trust their local government. The analysis demonstrates that political trust at the subnational level deserves greater empirical attention, especially as countries continue to deepen decentralization initiatives and cities strive to meet global development goals around inclusivity. |
| Keywords: | GHANA; WEST AFRICA; AFRICA SOUTH OF SAHARA; AFRICA; cities; urban areas; informal sector; urbanization; decentralization; governance; politics; agricultural trade; trade; political trust; informal economy; social contract |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:fpr:ifprid:1938&r=all |
| By: | Amadou Boly (Research Department, African Development Bank); Maty Konte (United Nations University (UNU-MERIT)); Abebe Shimeles (African Economic Research Consortium) |
| Abstract: | This paper analyzes the effect of the quality of governance (proxied by perceived corruption) on attitudes toward paying taxes. Using the Afrobarometer surveys from 36 African countries, over the period 2011-2015, we find that a perception of low corruption at different levels of the executive branch (president's office, government officials, or tax authorities) has a significant and positive impact on tax morale. To account for possible reverse causality between a citizen's perception of governance quality and attitude toward tax payment, we also propose an instrumental variables (IV) approach, using the ethnicity of the country's leader as an instrument for perceived level of corruption, the assumption being that individuals from the same ethnic group tend to have a favorable perception of concurrent governance. The IV results confirm that an individual's positive perception of governance has a positive impact on one's willingness to pay taxes. |
| Keywords: | corruption, taxation, governance, Africa JEL Classification: D73, H71, O55 |
| Date: | 2020–05–25 |
| URL: | http://d.repec.org/n?u=RePEc:adb:adbwps:2459&r=all |
| By: | Hanan Morsy (Research Department, African Development Bank); Lacina Balma (Research Department, African Development Bank); Adamon N. Mukasa (Research Department, African Development Bank) |
| Abstract: | The paper studies the effects of the COVID-19 pandemic on African economies and household welfare using a top-down sequential macro-micro simulation approach. The pandemic is modeled as a supply shock that disrupts economic activities of African countries and then affects households' consumption behavior, the level of their welfare, and businesses' investment decisions. The DSGE model is calibrated to account for informality, a key feature of African economies. We find that COVID-19 could diminish employment in the formal and informal sectors and contract consumption of savers and non-savers, especially for savers. These contractions would lead to an economic recession in Africa and widen both fiscal and current account deficits. Extreme poverty is expected to increase further in Africa, in particular if the welfare of the poorest households grows at lower rates. We also use the DSGE model to analyze the effects of different fiscal policy responses to the COVID-19 pandemic. |
| Keywords: | COVID-19, Macro-micro simulation, Welfare, Fiscal policy, Africa JEL Classification: E17, E62, I18, I3 |
| Date: | 2020–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:adb:adbwps:2464&r=all |
| By: | Chiswick, Barry R. (George Washington University); Halenda Robinson, RaeAnn (George Washington University) |
| Abstract: | Rates of labor force participation in the US in the second half of the nineteenth century among free women were exceedingly (and implausibly) low, about 11 percent. This is due, in part, to social perceptions of working women, cultural and societal expectations of female's role, and lack of accurate or thorough enumeration by Census officials. This paper develops an augmented free female labor force participation rate for 1860. It is calculated by identifying free women (age 16 and older) who were likely providing informal and unenumerated labor for market production in support of a family business, that is, unreported family workers. These individuals are identified as not having a reported occupation, but are likely to be working on the basis of the self-employment occupation of other relatives in their households. Family workers are classified into three categories: farm, merchant, and craft. The inclusion of this category of workers more than triples the free female labor force participation rate in the 1860 Census, from 16 percent to 56 percent, which is comparable to today's rate (57 percent in 2018). |
| Keywords: | women, labor force participation, occupational attainment, unpaid workers, unreported family workers, 1860 Census |
| JEL: | N31 J16 J21 J82 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13424&r=all |
| By: | International Monetary Fund |
| Abstract: | This technical assistance report on Republic of Armenia advices on advises on strategic choices for tax administration and compliance risk management. It complements the March 2018 tax administration mission, which provided the State Revenue Committee (SRC) with general guidance to develop and implement a compliance improvement framework. Armenia’s tax policy setting creates challenges for the SRC to effectively manage tax compliance. The Government’s tax policy framework is likely to create new noncompliance opportunities and result in revenue leakages. Strengthened fundamental functions and processes are needed for the delivery of effective tax administration. Two issues raised in the 2018 tax administration mission report need to be highlighted again. The mission provided an analysis of SRC case selection and advised on the adoption of analytical tools to achieve better results. The SRC’s current additive risk rule scoring approaches need to be supplemented by predictive modeling giving better predictions and prioritization of the likelihood and potential consequences of noncompliance—the use of such model is envisaged in the SRC’s draft strategic plan. |
| Keywords: | Revenue administration;Tax revenue;Tax policy;Tax administration;Tax reforms;ISCR,CR,SRC,taxpayer,tax regime,compliance,tax obligation |
| Date: | 2020–02–14 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/045&r=all |
| By: | L. Beccaria; S. Filipetto; N. Mura |
| Abstract: | La informalidad laboral aparece como una categoría relevante para el análisis de diversos aspectos de la realidad económica y social de los países en desarrollo tales como la caracterización de la estructura del empleo, la dinámica de las remuneraciones y la distribución de los ingresos del trabajo. El papel del sector informal influye, por tanto, en el diseño y ejecución de políticas públicas. Este trabajo examina la evolución del empleo del sector informal con relación al ciclo económico en Argentina durante las últimas cuatro décadas. Al estudiar del papel que el mismo asume en las fases de crecimiento y disminución del nivel agregado de actividad y ante diferentes comportamientos de la ocupación del sector formal, se enfatiza acerca de su heterogeneidad en tanto se espera que diferentes segmentos del mismo reaccionen de manera distinta en dichas coyunturas. |
| JEL: | J4 J6 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:aep:anales:4141&r=all |
| By: | Ariel Barraud |
| Abstract: | Es una característica que atañe a la mayoría de los países en desarrollo presentar estructuras macroeconómicas sumamente inestables, por lo que la posible presencia de shocks negativos se encuentra siempre presente a la hora de tomar decisiones de corto y mediano plazo, acortando así también los horizontes temporales de toma de decisión. En este trabajo presentamos un modelo que analiza cómo la incertidumbre respecto al escenario macroeconómico puede impactar en que se sostengan estructuras productivas desequilibradas caracterizadas por alta informalidad laboral. Se concluye argumentando que son las expectativas de crecimiento sostenido lo que estimula y sostiene los períodos de formalización. Se demostrará que la probabilidad de un shock macroeconómico en alguno de los períodos venideros modifica tanto las decisiones de las firmas de emplear formalmente como la de los trabajadores de realizar esfuerzo en las propias tareas laborales a fin de conservar el empleo a un salario esperado dado. |
| Keywords: | Seguridad Social, Ahorro previsional voluntario, Incentivos tributarios |
| JEL: | H31 H55 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:aep:anales:4104&r=all |