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on Informal and Underground Economics |
| By: | James Alm (Tulane University) |
| Abstract: | Ensuring compliance with the tax laws is an enduring challenge for all governments. However, the methods by which governments enforce the tax laws, and by which individuals and firms evade their taxes, change over time, due at least in part to changing technology. In this paper I examine how changing technology, especially changes driven by the transformation of information into digital formats for use by computers, seems likely to affect tax evasion in the years ahead. I argue that many of these changes in technology will improve the ability of governments to decrease tax evasion, mainly by increasing the flow of information to governments. However, I also argue that these changes in technology will open up new avenues by which some individuals and some firms can evade (and avoid) taxes. At this point it is unclear which trend will dominate, so that the effects of technology on the overall level of tax evasion is uncertain. Even so, I believe that the distributional effects of these technological changes are more predictable, given the differential effects of technology on the abilities of individuals of different levels and types of income to evade their taxes. Indeed, I argue that changing technology will make evasion increasingly difficult for most taxpayers, especially those subject to employer withholding and third party information reporting, but that evasion will be increasingly viable for a small number of taxpayers, especially very high income taxpayers. Regardless of the overall impact of technology on the level of tax evasion, I conclude that the effects of technology will likely increase economic inequality. |
| Keywords: | Tax evasion; Inequality; Technology; Digitalization |
| JEL: | H26 H22 D03 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:2101&r=all |
| By: | James Alm (Tulane University); Kay Blaufus (University of Hanover); Martin Fochmann (Free University of Berlin); Erich Kirchler (University of Vienna); Peter N. C. Mohr (Free University of Berlin); Nina E. Olson (Center for Taxpayer Rights); Benno Torgler (Queensland University of Technology) |
| Abstract: | Governments have taken remarkable measures during the SARS-CoV-2 pandemic in their efforts to safeguard citizens’ health and the economy. As a consequence, public debts have reached unprecedented levels, which will require at some point higher taxes. Ensuring that citizens pay these taxes requires consideration of the many factors that will likely affect their tax compliance decisions. In this paper, we reflect from a behavioral economic perspective the impact of tax policy measures on the perception, evaluation, and behavior of citizens and derive considerations to devise appropriate tax policies to ensure compliance in the future. We start with speculations about citizens’ views of governmental restrictions and economic stimulus measures in response to the crisis, we apply these speculations to the acceptance and perceived effectiveness of policy measures on citizens’ tax compliance behaviors, and we finish with their likely impact on determinants of tax compliance. Building on the derived insights, we deduce a set of considerations to improve tax compliance – and to generate the necessary tax revenues to deal with the after-effects of SARS-CoV-2 when the pandemic is under control: communication, transparency and justification of measures, access to support, service provision, audits and penalties in case of free-riding, targeted audits, building social norms of cooperation, consideration of framing effects, development of plans and strategies for the future, and anticipation of hindsight biases. |
| Keywords: | Covid-19 crisis; Tax compliance; Tehavioral economics; Behavioral taxation |
| JEL: | H12 H20 H26 D91 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:2102&r=all |
| By: | Andersson, Jonas (Dept. of Business and Management Science, Norwegian School of Economics); Olden, Andreas (Dept. of Business and Management Science, Norwegian School of Economics); Rusina, Aija (Dept. of Business and Management Science, Norwegian School of Economics) |
| Abstract: | In this paper we investigate the EM-estimator of the model by Caudill et al. (2005). The purpose of the model is to identify items, e.g. individuals or companies, that are wrongly classified as honest; an example of this is the detection of tax evasion. Normally, we observe two groups of items, labeled fraudulent and honest, but suspect that many of the observationally honest items are, in fact, fraudulent. The items observed as honest are therefore divided into two unobserved groups, honestH, representing the truly honest, and honestF, representing the items that are observed as honest, but that are actually fraudulent. By using a multinomial logit model and assuming commonality between the observed fraudulent and the unobserved honestF, Caudill et al. (2005) present a method that uses the EM-algorithm to separate them. By means of a Monte Carlo study, we investigate how well the method performs, and under what circumstances. We also study how well bootstrapped standard errors estimates the standard deviation of the parameter estimators. |
| Keywords: | Fraud detection; EM-algorithm; multinomial logit model; Monte Carlo study |
| JEL: | C00 C10 |
| Date: | 2020–12–31 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhhfms:2020_015&r=all |
| By: | Berniell, Inés; Berniell, Lucila; de la Mata, Dolores; Edo, María; Marchionni, Mariana |
| Abstract: | We estimate the short- and long-run labor market impacts of parenthood in a developing country, Chile, based on an eventstudy approach around the birth of the first child. We assess mechanisms behind these effects based on a model economy and find that: (i) informal jobs’ flexible working hours prevent some women from leaving the labor market upon motherhood, (ii) improving the quality of social protection of formal jobs tempers this increase in informality. Our results suggest that mothers find in informal jobs the flexibility needed for family-work balance, although it comes at the cost of deteriorating their labor market prospects. |
| Keywords: | Banca de desarrollo, Desarrollo, Economía, Familia, Género, Investigación socioeconómica, Mujer, Pobreza, Políticas públicas, |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:dbl:dblwop:1669&r=all |
| By: | Tumen, Semih (TED University); Turan, Belgi (University of Houston) |
| Abstract: | This paper presents new evidence on the causal relationship between fertility and female labor supply. We particularly focus on how informal employment affects post-fertility labor supply behavior of mothers. We employ an instrumental variable strategy based on an unused data source for twin births in Turkey—a large developing economy with extensive labor informality. We find that fertility causally affects female labor supply. After the first twin birth, female labor supply declines significantly and the ones who drop out of the labor force are mostly the informally employed women. Following further increases in family size introduced by multiple second and third births (i.e., unanticipated increase from 1 kid to 3 kids, and from 2 kids to 4 kids), formally employed females start dropping out of the labor force and hours of work decline. Wages and job search intensity also decline for females as fertility increases. We also investigate the impact of fertility on labor supply of fathers. Unlike females, males increase their labor supply, which mostly comes from the increase in informal employment—possibly due to a decline in reservation wages. Accordingly, wages decline, hours of work increase, and job search activity shifts from formal to informal search methods for males. Overall, these results suggest that informally employed women tend to quickly drop out of the labor force after giving birth. Fathers, on the other hand, become more likely to accept inferior, low-pay, and informal job offers as fertility goes up. The results are robust to using alternative IV specifications based on sex composition of children. |
| Keywords: | fertility, labor supply, twin births, informal employment, job search, instrumental variables |
| JEL: | J21 J22 J13 J31 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13986&r=all |
| By: | Hansson, Åsa (Department of Economics, Lund University); Kopsch, Fredrik (Department of Real Estate Science, Lund University) |
| Abstract: | It is well known that capital constraints can hinder individuals to set up a business. Many business owners rely on own capital or capital from friends, fools and family in order to acquire required capital. In this paper, we study the role property plays for starting a business or becoming self-employed. Specifically, we investigate how property values and changes in property taxes affect the likelihood that an individual is or becomes self-employed using rich Swedish individual panel data. The paper studies the probability that an individual is or becomes self-employed using detailed individual tax return data from Sweden. The property tax reform in 2008 is utilized as a “natural experiment” to analyze whether a lower property tax increased the probability of becoming self-employed. The reform in 2008 lowered the property tax for especially highly assessed property. Hence, the reform is predicted to reduce capital constraints for individuals with highly assessed property. Lower tax payments increase property values and consequently individual wealth, and in addition, increases disposable income as the recurrent yearly tax is reduced. The detailed data also allow us to control for many other important confounding factors. For example, we can control for other financial assets such as accumulated wealth, and capital as well as labor income. Results indicate that once we identify the effect of property value by the tax reform, property value is associated with higher probability of being self-employed but the result for becoming self-employed vanishes. |
| Keywords: | entrepreneurship; self-employment; property value |
| JEL: | M13 R33 R38 |
| Date: | 2020–12–10 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2020_026&r=all |
| By: | Nesma Ali (Heinrich-Heine University Düsseldorf); Mohamed Ali Marouani (IRD and Paris 1 Pantheon-Sorbonne University) |
| Abstract: | In this paper, we assess the impact of commercial registration of household enterprises on their labor productivity and profits. Based on the 2012 and 2018 rounds of the Egyptian Labor Market Panel Surveys, we employ an instrumental variable strategy and find a positive effect of formal registration on profit and a much higher positive effect on labor productivity. The main channels are higher capital intensity and assets. In addition to the owner’s gender and education level, labor productivity varies mainly with firms’ assets and shared ownership, while profits are mostly determined by the age of the firm and that of its owner. We also find that the positive effect of formality on performance holds for a select category of owners and firms. Finally, our analysis allows us to identify different policy intervention tools for household firms according to their productivity levels and their distance to a threshold of formality fixed costs. |
| Date: | 2020–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:erg:wpaper:1452&r=all |
| By: | Walid Merouani (Centre de Recherche en Economie Appliquée pour le Développement); Rana Jawad (University of Bath) |
| Abstract: | Political participation by citizens is important to ensure good governance and the accountability of policy makers’ decisions and initiatives. However, this issue may be especially difficult in contexts of high informal labour, defined in this paper as workers not enrolled in the formal social security system. This paper examines the topic of political participation among young workers in five Arab countries: Algeria, Egypt, Lebanon, Morocco, and Tunisia. It compares both formal and informal sector workers using data from the European Union’s 2018 SAHWA survey (http://www.sahwa.eu/). Amongst other variables, the paper tests the impact of informality on political participation. It uses four proxies for political participation to compare formal and informal workers in the case study countries: (1) affiliation to a political party or movement; (2) frequency of participation in political meetings/campaigns or participation in politics via the Internet; (3) frequency of speaking about politics and economic issues with peers; (4) voting in elections (both general and local). By controlling for demographic and socio-economic variables, the analysis uses discrete choice model to test the impact of this informality on the four proxies of political participation. An important contribution of this paper is to incorporate job satisfaction into the analysis. The results indicate that informal workers are less likely to participate in key political behaviours such as belonging to political parties, participating in political meetings and speaking about politics and voting with peers. The paper proposes some key policy implications arising from the analysis |
| Date: | 2020–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:erg:wpaper:1434&r=all |
| By: | Demiessie, Habtamu |
| Abstract: | Abstract This study is aimed at making inferences on the general picture of businesses in the Somali Region, with a focus on women operated business units both in the formal and informal sectors of the economy. The sample population of the study involves two categories of respondents: women in the formal sector and Business women in the informal sector. The study heavily relied on primary data sources as source of information. Quantitative and qualitative data were gathered through structured questionnaires and focus group discussions (FGDs). Field observation also takes an important source of information. The study employs a mix of quantitative and qualitative techniques of inferences. The quantitative analysis involves descriptive and econometrics tools. The study found out that lack of alternative employment opportunities and low income in the formal employment as major reasons driving women into the informal businesses. Cumbersome business registration requirements and tax administrations in formal sector arrangement are also another reason that found discouraging formal sector engagements which rather incentivize to work underground. Moreover, the study concluded migrant labor major players in the informal businesses in Jigjiga City. More importantly, the study found out that informal businesses complement businesses in formal businesses. The linkages between the informal and formal sector were identified as source of raw materials, labor, information and capital. The study further concluded that social capital an important component of the economic environment, having facilitating role in business activities both in the formal and informal settings. The findings of the study suggests for legal and institutional reforms which facilitate the way informal and formal businesses can function together. Informal sector development interventions should also align migration and urban development issues central parts of their undertakings. As the study concluded social capital for having vital role in the business undertakings, policy regimes aimed at business development have to capitalize on the stock of social capital. |
| Keywords: | Informal-formal Linkage, Women, Jigjiga, Ethiopia |
| JEL: | H0 J6 |
| Date: | 2020–12–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:104746&r=all |