nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2023‒11‒13
seven papers chosen by
Catalina Granda Carvajal, Banco de la República

  1. A Cost-Benefit Analysis Methodology for Administrative Prefilling of Value-Added Tax Returns: An Application for Chile By Glenn P. Jenkins; Siamand Hesami; Osaid Alshamleh; Anastasiya Yarygina; Carola Pessino
  2. Tax Avoidance or Compliance Costs Avoidance? Evidence from VAT Reforms in Japan By Takafumi Kawakubo; Takafumi Suzuki; Kohei Asao
  3. Minimum Wages in the Presence of Wage and Non-Wage Sectors in India: An Exploratory Analysis of the Non-Farm Sector By Mohit Sharma; Brinda Viswanathan
  4. Compliance Costs of GST for Small Business Enterprises in Tamil Nadu By S. Vishnuhadevi; D. Hima Bindu
  5. Unintended Consequences of Youth Entrepreneurship Programs: Experimental Evidence from Rwanda By Blimpo, Moussa; Pugatch, Todd
  6. Using Digital Technologies to Improve Tax Collection – the Case of Togo By Kang’oro, Dorothy; Ngerero, Fidele; Odongo, Ignatius
  7. Effective Land Ownership, Female Empowerment, and Food Security: Evidence from Peru By Schling, Maja; Pazos, Nicolás

  1. By: Glenn P. Jenkins (Department of Economics, Queens University, Kingston, Ontario, Canada and Cyprus International University, North Cyprus); Siamand Hesami (Department of Finance Bournemouth University, UK, and Cambridge Resources International Inc.); Osaid Alshamleh (Vienna University of Economics and Business, Cyprus International University, North Cyprus, and Cambridge Resources International Inc.); Anastasiya Yarygina (Inter-American Development Bank (IDB)); Carola Pessino (Inter-American Development Bank (IDB))
    Abstract: Tax administrations (TAs) worldwide have increasingly been moving toward digitalization to increase process efficiency and service delivery. This technical note presents a methodology, and its application for the case of Chile, for evaluating the benefits and costs of a particular component of the TA’s digital transformation: prefilling of value-added tax (VAT) returns. The analysis identifies and allocates the net benefits from both the financial and the economic perspectives considering two major stakeholders: the government and taxpayers. The results show that prefilled VAT returns could benefit TAs and taxpayers, with a reduction in taxpayers’ compliance costs being a primary benefit. The application of the model to the Chilean case shows the economic net present value of the prefilling of VAT returns is US$5.66 billion, with a net benefit to the private sector of US$1.729 billion and a public sector or budgetary impact of US$3.391 billion. Sensitivity analyses show that the results are robust to changes in assumptions, except for the impact on government revenues from the change in taxpayer compliance. Overall, the results show that prefilling tax returns is an effective solution to high taxpayer compliance costs, the associated tax gap, and the risk of burdensome inspections, audit, and tax evasion.
    Keywords: cost-benefit analysis, tax compliance cost, tax administration, digitalization
    JEL: D61 H21 H26 H83
    Date: 2023–10–17
  2. By: Takafumi Kawakubo (London School of Economics and Visiting Scholar, Policy Research Institute, Ministry of Finance, Japan); Takafumi Suzuki (Lecturer, Aichi Shukutoku University); Kohei Asao (Visiting Scholar, Policy Research Institute, Ministry of Finance, Japan)
    Abstract: This paper disentangles the motivations behind how enterprises respond to sizedependent tax regulations by exploiting the value-added tax (VAT) reforms in Japan. In Japan, both tax threshold and tax rate have been changed over the past three decades since the introduction of VAT. We build on the model of Harju et al. (2019) to incorporate various tax reforms and derive empirically testable implications. By using a novel panel of Japanese Census of Manufacture covering the period over VAT introduction and reforms, we conducted bunching estimation. The local estimates imply that the observed output response by enterprises is mainly caused by compliance costs rather than tax rates for small enterprises in Japan. The results suggest that easing compliance costs could be more effective support for small enterprises rather than reducing tax rate/burden.
    Keywords: compliance costs; value-added tax; sole proprietor; firm behavior
    JEL: D22 H25 H32 L11
    Date: 2022–06
  3. By: Mohit Sharma (Ph.D. Scholar, Madras School of Economics, Chennai); Brinda Viswanathan (Professor & Dean Research, Madras School of Economics, Chennai)
    Abstract: The Indian labour market is characterized by large informality and self-employment. While most of the literature in developing nations on minimum wages has focused on the impact of minimum wages on wages and the employment of the ‘wage earners’, this leaves out a large proportion of the self-employed workforce (non-wage earners). Using the novel data on minimum wages and with the availability of earnings data for self-employed workers in the recent Periodic Labour Force Survey (PLFS) rounds 2017-18, 2018-19, and 2019-20, this study attempts to explore the role of minimum wages on the earnings of all categories of workers including self-employed in the non-farm sector. We find that for unskilled and semi-skilled workers who have studied up to secondary education, higher levels of minimum wages reduce the earning gap between regular, own-account, and casual workers. This might indicate the “lighthouse effect”, where both casual and own-account workers (primarily engaged in informal activities) use minimum wages as a numeraire to carry out earnings negotiations. It has also been found that a higher level of minimum wage reduces the earnings disparity between males and females.
    Keywords: Minimum wage, Informality, Self-employment, Lighthouse effect, India
    JEL: J21 J23 J30 J31 J46 J50
  4. By: S. Vishnuhadevi (PhD student, Department of Economics, Stella Maris College, Chennai); D. Hima Bindu (Associate Professor, Department of Economics, Stella Maris College, Chennai)
    Abstract: The main objective of this study is to examine the level of compliance burden through estimating the GST compliance costs incurred by the small businesses in Tamil Nadu. Further, to estimate the aggregate GST compliance costs incurred by the business in absolute terms and relative to Gross State Domestic Product (GSDP) and GST revenue of Tamil Nadu for the year 2019-20, and finally to identify the factors associated with the GST compliance costs using classical regression analysis. The results reveal that the overall weighed mean of the GST compliance costs is Rs. Rs. 32091 and the aggregate GST compliance costs is Rs. 17844 million which is around 0.10 percent and 4.65 percent of GSDP and GST revenue respectively. Further, the GST compliance costs incurred by the smallest firms is 1.45 percent of their annual turnover, and the same for largest firms it is only about 0.02 percent, which shows the regressive nature of the compliance costs as reported in the previous studies. Lastly, the regression results reveal that the volume of business, sector of the business, size of the business, firms with refund claims, and the manner with which the GST returns are completed are the important factors that are associated with the GST compliance costs incurred by the small businesses in Tamil Nadu.
    Keywords: tax compliance costs; GST compliance costs; VAT compliance costs; small businesses; India; Tamil Nadu
    JEL: H20 H25 H29
  5. By: Blimpo, Moussa (University of Toronto); Pugatch, Todd (Oregon State University)
    Abstract: The persistently high employment share of the informal sector makes entrepreneurship a necessity for youth in many developing countries. We exploit exogenous variation in the implementation of Rwanda's entrepreneurship education reform in secondary schools to evaluate its effect on student economic outcomes up to three years after graduation. Using a randomized controlled trial, we evaluated a three-year intensive training for entrepreneurship teachers, finding pedagogical changes as intended and increased entrepreneurial activity among students. In this paper, we tracked students following graduation and found that increased entrepreneurship persisted one year later, in 2019. Students from treated schools were six percentage points more likely to be entrepreneurs, an increase of 19 percent over the control mean. However, gains in entrepreneurship faded after three years, in 2021. Employment was six percentage points lower in the treatment group. By some measures, income and profits were lower in the treatment group, with no robust differences in these outcomes overall. Lower incomes and profits were concentrated among marginal students induced into entrepreneurship by the program. Youth entrepreneurship programs may therefore steer some participants away from their comparative advantage. Nonetheless, the program increased university enrollment, suggesting the potential for higher long run returns.
    Keywords: entrepreneurship education, youth employment, secondary school, pedagogy, randomized controlled trials, Rwanda
    JEL: I25 I26 I28 J24 O12 O15
    Date: 2023–09
  6. By: Kang’oro, Dorothy; Ngerero, Fidele; Odongo, Ignatius
    Abstract: The increasing digitalisation of African economies over the past decade, and the spread of mobile money and digital financial services (DFS), has given both opportunities and challenges to tax administrations in Africa. In theory, the use of digital technologies and expanded use of DFS can provide tax administrations with access to extensive new digitised data, increase transparency, and make the overall taxpayer experience easier. All this can ultimately improve the tax administration’s performance. However, studies show that tax administrations face important challenges in how to best develop their capacity to use digitised data, and to re-align operations and skills to new digitalised operating models. This paper is a policy-oriented qualitative study focusing on Togo. Like several African tax administrations, in 2014 the Office Togolais des Recettes (OTR) embarked on digital transformation. It invested in digital technologies, including e-Services such as Tmoney and Flooz, which were developed with telecom companies and banks. Our paper aims to provide more quantitative and qualitative evidence on enablers and inhibitors to adopting digital technologies and DFS, which will help African tax administrations to fully use their capabilities. We carried out inductive content analysis on qualitative data from key informant interviews and focus group discussions with key stakeholders. We also conducted online surveys of taxpayers from large and medium-sized enterprises. We triangulated the data from online surveys with data from the qualitative methodology to provide an objective analysis of the benefits of implementing digital technologies and DFS. We identified the independent variables and drivers that are critical to achieving OTR’s objectives for implementing digital technologies and DFS, and the dependent variables representing outcomes relating to OTR’s goals. Using survey data, we developed a regression model assessing the association between the drivers and outcomes, grouping them into key outcomes.
    Keywords: Finance, Technology,
    Date: 2023
  7. By: Schling, Maja; Pazos, Nicolás
    Abstract: This paper examines the effect of women's effective land ownership on female empowerment and household food security in the context of Peruvian family farming. Using an instrumental variable approach, we explore whether self-declared informal ownership of plots provides women with increased bargaining power, empowering them to participate more actively in productive decision-making that leads to improved crop diversity and food security. While our results do not find significant effects of informal land ownership on women's empowerment, we do find that owning land significantly decreases the daily time dedicated to agricultural work, possibly freeing up time for the woman to engage in other activities. Results also show that female land ownership significantly increases the level of crop diversity and improves the households probability of being food secure by 20 percentage points. This suggests that equal access to land, even without formal title, plays an important role in improving household welfare among smallholder family farmers.
    Keywords: Gender empowerment;food security;land property rights;Peru;Latin America
    JEL: C26 O12 O13 Q15 Q18
    Date: 2021–12

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