nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2023‒09‒04
three papers chosen by
Catalina Granda Carvajal, Banco de la República

  1. Controlling for fixed effects in studies of income underreporting By Odd E. Nygård; Thor O. Thoresen
  2. How to Combat Value-Added Tax Refund Fraud By Cedric Andrew; Ms. Katherine Baer
  3. Is Self-Employment for Migrants? Evidence from Italy By Brunetti, Marianna; Zaiceva, Anzelika

  1. By: Odd E. Nygård; Thor O. Thoresen (Statistics Norway)
    Abstract: The expenditure method of Pissarides and Weber (1989) [Journal of Public Economics, 39 (1), 17-32) shows how one backs out measure of income underreporting by the self-employed by using food consumption as trace of true income. In this paper we make a case for using panel data and fixed effects estimation in such analysis, instead of OLS estimation. The main argument is that fixed effects estimation addresses the problem of omitted variable bias in the identification. We demonstrate the use of panel data and fixed effects estimation by using large scale administrative register data on charitable donations, exploiting that the data can be turned into a panel dataset. The results suggest that the estimation technique matters – fixed effects estimates are smaller than OLS estimates.
    Keywords: Income underreporting; register data; expenditure approach; fixed effects estimation
    JEL: H26 E21 E26 C55
    Date: 2023–05
  2. By: Cedric Andrew; Ms. Katherine Baer
    Abstract: A previous IMF Working Paper on value-added tax (VAT) refunds (WP/07/31, by Keen and Smith) describes the main forms of VAT noncompliance and concludes that VAT is susceptible to evasion and fraud like any other tax. This paper shows the insidious nature and extent of VAT refund fraud in selected EU countries and argues that this type of noncompliance requires tax administrations to adopt a coordinated strategy and deploy a range of countermeasures to combat this threat. Because such fraud is primarily a criminal legal issue, tackling it successfully will require cooperation, both internationally between VAT administrations and nationally between tax authorities and the judiciary. The paper’s focus is primarily on advanced economies in the context of the EU, but many of the recommendations are applicable to emerging market and developing countries. A separate IMF How to Note discusses managing VAT refunds in developing countries.
    Keywords: value-added tax; refund; fraud; strategies; cooperation; refund fraud; acquisition fraud scheme; return fraud; MTIC VAT Contra carousel scheme; Customs and Excise tax office case study; Tax refunds; Tax administration core functions; Middle East
    Date: 2023–08–04
  3. By: Brunetti, Marianna; Zaiceva, Anzelika
    Abstract: Using a unique Italian dataset covering the period 2004-2020, we assess the immigrant-native gap in entrepreneurship and investigate channels behind it. The data allows us to account for many observable characteristics as well as for risk aversion, which is usually not observed, yet crucial for the self-employment decision. Unlike most of the existing empirical literature, we find that immigrants in Italy are less likely to be self-employed. The negative gap is confirmed when propensity score matching methodology is used. Heterogeneity analysis suggests that the negative gap is larger for men, for economic migrants and those coming from Sub-Saharan Africa, while it is not significant for mixed immigrant-native couples, for highly skilled, and for migrants from Asia and Oceania. The largest gap is found for those working in the agricultural sector. Regarding additional channels, we explore the role of access to credit, including the informal one, and whether migrants are credit constrained, as well as the importance of migrant networks, easiness of doing business, and expenditures on services for migrants. Despite finding significant correlations between self-employment and some of these factors, none of them seem to decrease the magnitude of the negative gap.
    Keywords: immigrants, self-employment, gender, intermarriage, propensity score matching
    JEL: F22 J21 O15 J15
    Date: 2023

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