nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2023‒10‒02
five papers chosen by
Catalina Granda Carvajal, Banco de la República

  1. The Bright Side of Tax Evasion By Wladislaw Mill; Cornelius Schneider
  2. Tax and Governance in the Context of Scarce Revenues: Inefficient Tax Collection and its Implications in Rural West Africa By Beach, Rachel; van den Boogaard, Vanessa
  3. Corporate Tax Transparency Issues and Concerns in Bangladesh By Khondaker Golam Moazzem; Shah Md Ahsan Habib; Chowdhury Fariha; Moumita
  4. Effects of Time Zone Related Distance on Trade: Goods vs. Service By Mandal, Biswajit; Das, Maitrayee
  5. Catch Them If You Can: The Politics and Practice of a Taxpayer Registration Exercise By Gallien, Max; Occhiali, Giovanni; van den Boogaard, Vanessa

  1. By: Wladislaw Mill; Cornelius Schneider
    Abstract: This paper investigates whether tax evasion can be beneficial for an optimal income tax schedule. Past theoretical discussions have presented mixed outcomes as to whether allowing taxpayers to opt into uncertainty could indeed enhance overall tax revenues. In this study, we conducted an original real effort experiment in an online labor market with almost 1, 000 participants to test this hypothesis empirically. Our findings show significant positive labor supply responses to the opportunity to evade (increased labor supply by 37%). More importantly, the expected tax revenue significantly and substantially increased by up to more than 50%. As an example, our data suggests that a 40% tax rate with complete enforcement could be replaced with a 28% tax rate with the option of tax evasion, without any loss in tax revenue. Strikingly, this effect persists when comparing effective tax rates: Lowering effective tax rates through probabilistic enforcement (the opportunity to evade) is more efficient than simply lowering statutory tax rates. Our findings suggest that the opportunity for tax evasion can increase tax revenues beyond what a corresponding decrease in nominal rates would achieve. For welfare analyses, this highlights the importance of not only considering the elasticity of taxable income (ETI) but total earned income elasticities.
    Keywords: tax evasion, tax revenues, labor supply, optimal taxation, experiment
    JEL: H21 H24 H26 J22 C91
    Date: 2023
  2. By: Beach, Rachel; van den Boogaard, Vanessa
    Abstract: The expansion of the ‘tax net’ has commanded considerable domestic and international policy attention as a means of financing essential services, reducing dependence on international aid, and producing positive ‘government dividends.’ A growing body of research, however, questions the logic of extending the tax base, particularly among individuals and businesses in the urban informal economy, highlighting the associated revenue inefficiencies, negative equity implications, and lack of a direct relationship between tax payment and government accountability.
    Keywords: Development Policy, Finance, Governance,
    Date: 2023
  3. By: Khondaker Golam Moazzem; Shah Md Ahsan Habib; Chowdhury Fariha; Moumita
    Abstract: The study primarily reviewed existing literature and analysed data from reports and research articles on selected developing countries, while the objective was to understand the tax structure and issues related to tax avoidance and evasion. This document is a brief version of the study that examines the tax framework in developing nations, the connection between the informal economy and tax income, and an examination of the tax-to-GDP ratio and corporate tax rate in Bangladesh throughout the years. It also examines secrecy scores across various indicators and the occurrence of tax abuse at varying desired levels of the tax-to-GDP ratio. Furthermore, it presents a set of suggestions derived from primary and secondary data to promote corporate tax transparency in Bangladesh.
    Keywords: Corporate Tax, Transparency, tax avoidance, tax evasion, tax-to-GDP ratio, tax abuse
    Date: 2023–08
  4. By: Mandal, Biswajit; Das, Maitrayee
    Abstract: This paper aims to explain that distance may not always be harmful for international trade, unlike the explanations provided by the gravity model. In case of service trade distance may be helpful instead, because of the existence of non-overlapping time zones between two trading countries. So, we will try to examine this phenomenon whether distance is always affecting trade symmetrically. This paper begins by introducing a basic model that examines a two-sector economy and investigates the impact of trade on factor prices and output changes in case of both goods trade and service trade. The findings reveal that in case of service trade, an increase in the geographical distance between trading countries leads to a rise in skilled labour wages, while rent of capital decreases. Consequently, this causes the service sector to expand while the other sector contracts. Conversely, these outcomes are completely reversed in the case of goods trade. Next, the model is expanded to incorporate an informal sector. This extension demonstrates similar effects to those observed in the basic model, but the effects are profound compared to basic model when an informal sector is present. Therefore, our model highlights the contrasting outcomes between goods trade and service trade and emphasizes the intensified effects when an informal sector is taken into account.
    Keywords: Trade; Time Zone; Factor prices; Output Changes; Informality
    JEL: D24 E26 F1 J3 J31
    Date: 2023–05–20
  5. By: Gallien, Max; Occhiali, Giovanni; van den Boogaard, Vanessa
    Abstract: Tax registration drives have become an increasingly popular intervention to expand the coverage of tax nets across sub-Saharan Africa. Promising increased revenue for states and formalisation benefits for newly registered enterprises, the appeal of these interventions is intuitive. However, there is increasing evidence that registration drives do not lead to a substantial increase in revenue and disproportionately target lower income groups.
    Keywords: Finance, Politics and Power,
    Date: 2023

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