nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2022‒09‒05
three papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Visual Nudges: How Deterrence and Equity Shape Tax Compliance Attitudes and Behaviour in Rwanda By Santoro, Fabrizio; Mascagni, Giulia
  2. Ghosting the Tax Authority: Fake Firms and Tax Fraud By Paul Carrillo; Dave Donaldson; Dina Pomeranz; Monica Singhal
  3. Growth, economic structure and informality By Chacaltana Janampa, Juan,; Bonnet, Florence.; Garcia, Juan Manuel.

  1. By: Santoro, Fabrizio; Mascagni, Giulia
    Abstract: The empirical evidence on the drivers of compliance is expanding quickly, but there is less evidence from low-income countries. Mass-media communication channels are a cheap option that budget-constrained revenue administrations can use to communicate with taxpayers. However, very little is known about the effectiveness of such tools in improving compliance. This paper starts to address this gap by testing the impact of two short animated videos on tax matters – one focusing on deterrence and the other on equity – that were used in a survey experiment. Using a unique dataset of survey and administrative data from Rwandan taxpayers, we are able to measure the impact on compliance perceptions and behaviour. We document two significant results. First, both videos are effective in improving perceptions around enforcement and equity. Second, only the deterrence video translates into more tax being remitted – the equity appeal fails to raise more revenue. We investigate the mechanisms behind this response, and show that prior behaviour of taxpayers might explain the different responses to our deterrence and equity treatments. Our intervention is highly cost-effective and easily scalable.
    Keywords: Governance,
    Date: 2022
  2. By: Paul Carrillo; Dave Donaldson; Dina Pomeranz; Monica Singhal
    Abstract: An important but poorly understood form of firm tax evasion arises from the use of "ghost firms"—fake firms that issue fraudulent receipts so that their clients can claim false deductions. We provide a unique window into this global phenomenon using transaction-level tax data from Ecuador. Ghost transactions are widespread, prevalent among large firms and firms with high-income owners, and exhibit suspicious patterns in comparison to ordinary transactions: bunching at round numbers, at the end of the fiscal year, and just below financial system thresholds. We go on to study an innovative enforcement intervention that targeted ghost clients rather than ghosts themselves, which led to substantial tax recovery.
    JEL: H25 H26 H32
    Date: 2022–07
  3. By: Chacaltana Janampa, Juan,; Bonnet, Florence.; Garcia, Juan Manuel.
    Abstract: This paper explores the relationship between economic growth and informality and highlights the role of GDP growth and its composition in the level and evolution of informality, using country data from 1991 to 2019. The analysis reveals a weak relationship, although with important differences across regions and income levels. Coefficients are higher in middle-income countries. This means that the same growth rate generates different impacts on informality depending on the country, probably due to pre-existing levels of informality, the economic structure or institutional and other variables. Economic structure appears to be the key determinant of informality, even after controlling for endogeneity, using different proxies of informality or including institutional variables. These results confirm that the economic structure and pattern of growth matters for formalization. This calls for policies that promote changes in the productive structure, including a broader, more diversified base and more economic complexity and technological sophistication, to ensure inclusive growth.
    Keywords: economic growth, informal economy, gross domestic product, economic structure
    Date: 2022

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