nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2023‒05‒22
eight papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. MULTIBILLION-DOLLAR TAX QUESTIONS By James Alm; Jay A. Soled; Kathleen DeLaney Thomas
  2. REVISING FORM 1040 FOR THE TWENTY-FIRST CENTURY By James Alm; Jay A. Soled; Kathleen DeLaney Thomas
  3. Self-Employment Income Reporting on Surveys By Christian Imboden; John Voorheis; Caroline Weber
  4. Introduction to the Symposium on the Shadow Economy, Tax Behaviour, and Institutions By Granda-Carvajal, Catalina; Kogler, Christoph
  5. Employment transitions with high unemployment and a small informal sector: Examining worker flows during normal and recessionary periods in South Africa By Shakeba Foster
  6. Women’s transitions in the labour market as a result of childbearing: the challenges of formal sector employment in Indonesia By Lisa Cameron; Diana Contreras Suarez; Yi-Ping Tseng
  7. Social Capital in Micro-family Enterprises: A Case Study in East Java, Indonesia By Augendra Bhukuth; Damien Bazin; Ani Wulandri; Valentina Teslenko
  8. Formalisation et accès au crédit des petites et moyennes entreprises : cas du Togo By KOTOKLO, Edoh; TOGBENU, Fo-kossi edem

  1. By: James Alm (Tulane University); Jay A. Soled (Rutgers Business School); Kathleen DeLaney Thomas (University of North Carolina School of Law)
    Abstract: Tax compliance in the United States historically hovers in the 80 percent range, costing the nation approximately half a trillion dollars annually in uncollected tax revenue. To foster greater tax compliance, the Internal Revenue Service (IRS) should employ whatever tools are at its disposal. Standard deterrence theory argues that increasing the audit rate and imposing stiffer penalties would foster greater tax compliance. There are political headwinds, however, that strongly suggest that these approaches are not currently viable. Instead, there is a low-cost method that could yield greater tax compliance. Drawing on recent and compelling social science research, the IRS should ask more information-revealing questions on tax returns. By engaging in this important exercise of strategic inquiries, dual benefits are likely to emerge: taxpayers would be more likely to report honestly to avoid acts of commission (e.g., lying); and the IRS would be in a better strategic position because it would possess additional, relevant information on taxpayer activities.
    Keywords: Internal Revenue Service, tax compliance, behavioral economics, nudges, act of omission, act of commission
    JEL: H2 H26 D91
    Date: 2023–04
  2. By: James Alm (Tulane University); Jay A. Soled (Rutgers Business School); Kathleen DeLaney Thomas (University of North Carolina)
    Abstract: Since the introduction of Form 1040 early in the last century, the form has largely remained unchanged. However, recent social science research demonstrates that the ways in which tax returns are structured and tax questions are asked can dramatically affect the responses of taxpayers. There is also strong evidence that most taxpayers now prepare their returns with computer software. In light of these developments, this Article argues that the contents of Form 1040 should be revised. In particular, new questions should be strategically and prominently placed on the form. This is not an exercise in mere aesthetics. If handled properly, the by-product of this revision could be greater taxpayer honesty and improved information for the Internal Revenue Service, both of which could yield billions of dollars of additional revenue without raising tax rates.
    Keywords: Internal Revenue Service, tax compliance, behavioral economics, nudges, act of omission, act of commission
    JEL: H2 H26 D91
    Date: 2023–04
  3. By: Christian Imboden; John Voorheis; Caroline Weber
    Abstract: We examine the relation between administrative income data and survey reports for self-employed and wage-earning respondents from 2000 - 2015. The self-employed report 40 percent more wages and self-employment income in the survey than in tax administrative records; this estimate nets out differences between these two sources that are also shared by wage-earners. We provide evidence that differential reporting incentives are an important explanation of the larger self-employed gap by exploiting a well-known artifact – self-employed respondents exhibit substantial bunching at the first EITC kink in their administrative records. We do not observe the same behavior in their survey responses even after accounting for survey measurement concerns.
    Keywords: Income Reporting, Survey Accuracy, Measurement Error, Tax Evasion, Tax Avoidance
    JEL: C83 H24 H26
    Date: 2023–04
  4. By: Granda-Carvajal, Catalina; Kogler, Christoph
    Abstract: This JOIE Symposium features some of the most influential papers presented in the 7th version of the conference on The Shadow Economy, Tax Behaviour and Institutions. Accordingly, it brings together contributions from several disciplines and schools of thought in the social sciences and the humanities exploring such issues as the role of formal and informal institutions in understanding the shadow economy, the importance of social aversion in the motivations for tax compliance, and the dual nature of corruption. This introduction lays out the scope of the symposium, summarises the preceding literature on the topic, and provides a brief outline of each contributing article, noting that, although each paper focuses on a different economic and cultural context, they share several elements in common with alternative theories addressing the institutional, psychological, and sociological aspects of tax law compliance and other appropriate behaviours.
    Keywords: shadow economy; tax behaviour; informal institutions; regional and country studies
    JEL: D73 H30 K42 O17 O50
    Date: 2023–05
  5. By: Shakeba Foster
    Abstract: This paper examines employment transitions in the South African labour market. Using the Post-Apartheid Labour Market Series, it analyses flows between the formal sector, informal sector, and unemployment, paying specific attention to how these flows differ during recessions. It explicitly considers heterogeneity within the informal sector by separately accounting for wage employment and self-employment as well as upper-tier and lower-tier informal sector segments.
    Keywords: Informal work, Employment, transition, Recession, South Africa
    Date: 2023
  6. By: Lisa Cameron (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne); Diana Contreras Suarez (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne); Yi-Ping Tseng (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne)
    Abstract: Although it is well established that women’s labour force participation drops markedly with marriage and childbearing, surprisingly little is known about women’s labour market transitions, especially in developing countries. This paper uses the Indonesian Family Life Survey to track the employment histories of over 9, 000 women across a period of more than 20 years, observing them as they get married and have children. The data show that large numbers of Indonesian women drop out of the labour market as a result of marriage and childbearing. The difficulty of maintaining formal sector employment emerges as a key problem. Having worked in the formal sector prior to the birth of a first child reduces the probability of working in the year following the birth by 20 percentage points and reduces the probability of returning to the labour market thereafter by 3.6 percentage points. Further, to the extent that women do return to work, formal sector employment is associated with greater delays in returning - women are more likely to return to work in the formal sector only once their child starts primary school, while in the informal sector they return earlier. We find little evidence of women switching from the formal to the informal sector. Formal sector labour market policies such as flexible work hours; compressed work weeks; part-time work (with the same career opportunities and benefits as full-time work); the ability to work from home; and work-based childcare are likely to boost women’s labour force participation, with consequent boosts to economic productivity and prosperity.
    Keywords: female labour force participation, labour market transitions, economic development, childbearing
    JEL: J20 J16 O15
    Date: 2023–05
  7. By: Augendra Bhukuth (Ieseg Management School, France); Damien Bazin (Université Côte d'Azur; GREDEG CNRS); Ani Wulandri (Narotama University, Surabaya, Indonesia); Valentina Teslenko (ARENAP, Russia)
    Abstract: Family businesses operating mainly in the informal economy in East Java, Indonesia, generally employ family members and neighbors. As part of a qualitative study on employer-employee relationships, we interviewed the owners of 37 of these family businesses (30 small and 7 medium) to investigate the level of responsibility they feel towards their employees. By using a Social Capital approach to analyze the data, we found that the relationship between employers and employees is based on trust, and that family businesses have to maintain this trust to be able to sustain their activities in a highly competitive market. We then describe the ups and downs of managing employees when the employer-employee relationship is close.
    Keywords: Decent work, Employers-employees relationship, Family Business, Informal sector, Microenterprises, Social benefits, Social capital
    JEL: D22 J15 J24 J46
    Date: 2022–05
  8. By: KOTOKLO, Edoh; TOGBENU, Fo-kossi edem
    Abstract: The purpose of this paper is to analyze the effect of formalization on access to credit by taking the example of Togolese (small and medium) enterprises. To achieve this objective, we test the hypothesis that the formalization of firms has a significant effect on access to credit. To do so, a Probit regression and the special regressor method were used on data from 65, 725 firms extracted from the 2019 General Census of Enterprises database piloted by the Institut Nationale de la Statistique et des Etudes Economiques et Démographiques (INSEED). The results show that the variable "Formalization of enterprises (small and medium)" has a significant influence at the 1% level on the probability of access to credit. In addition, the control variables such as guarantees, cost of credit, access to the public market, gender and level of education also explain access to credit at the 1%, 1%, 5% and 10% thresholds respectively. Our results show the importance of training and capacity building for informal enterprises to formalize. Also, they will allow regulatory bodies to develop policies that can reframe the informal sector in order to contribute to the GDP and absorb more young people seeking employment.
    Keywords: Keywords: Formalization, SMEs, Access to Credit, Probit and Special Regressor
    JEL: D22
    Date: 2023–03–17

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