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on Informal and Underground Economics |
| By: | Jiaxiong Yao |
| Abstract: | This paper develops a new approach to estimating the degree of informality in an economy. It combines direct yet infrequent measures of the informal economy in micro data with an augmented factor model that links macro indicators of the informal economy to its causes. We show that the prevailing model used in the literature, the multiple indicators multiple causes model, is a special case of the augmented factor model and depicts an incomplete picture of the informal economy. Using the augmented factor model approach, we show that the dynamics of the informal economy is shaped by the strength of overall economic activity as well as the interplay between the formal and informal economies. Contrary to previous work that typically finds declining informality for most countries, we find that the degree of informality has increased for low-income countries for the past two decades. |
| Keywords: | Informality; augmented factor model; MIMIC model; survey data |
| Date: | 2024–05–31 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/110&r= |
| By: | Naruki Notsu (Osaka School of International Public Policy, Osaka University); Haruaki Hirota (Faculty of Economics, Musashi University); Nobuo Akai (Osaka School of International Public Policy, Osaka University) |
| Abstract: | This study examines the effects of enhancing the tax enforcement of administration on the tax gap, focusing on inter-municipal cooperation (IMC). IMC refers to collaborative tax collection efforts among multiple municipalities and promotes the aggregation of tax collection resources and expertise, improving tax enforcement. Using the time variation in IMC creation across municipalities, we show that IMC substantially improves the tax gap measurement by reinforcing tax enforcement in local governments. The effects also appear to be driven at both the inter-municipal organization and municipal official levels. Our findings suggest that enhanced administrative capability in tax enforcement can be an effective tool against noncompliance in ways other than facilitating voluntary compliance. |
| Keywords: | Inter-municipal cooperation, Tax enforcement, Tax compliance |
| JEL: | H71 H77 H83 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:osp:wpaper:24e004&r= |
| By: | Zanoni, Wladimir; Carrillo-Maldonado, Paul; Pantano, Juan; Chuquimarca, Nicolás |
| Abstract: | In this study, we examine the behavior of self-employed taxpayers who “bunch" at an income level just below a critical threshold, which triggers a transition from a simple tax regime to a more complex one. Under the simple regime, individuals complete their tax forms independently, while the complex regime mandates the use of a public accountant for maintaining accounting records. Utilizing data from the Ecuadorian tax authority from 2011 to 2014, we initially observed and documented the bunching behavior prompted by the shift between regimes. Subsequently, we assess the impact of this regime transition on the amount of taxes paid by those self-employed taxpayers who choose to fill taxes in the complex regime. Our methodology employs both parametric and semi-parametric “donut” estimators to evaluate these effects. We find that the regime shift indeed prompts taxpayers to bunch below the income threshold, opting to remain within the simpler regime. Interestingly, those who transition into the complex regime tend to pay less in taxes. This pattern holds across various bunching windows and is consistent across several estimators used. Our results suggest that accountants are the key mechanism behind the effects, for they help taxpayers better navigate tax deductions and benefits, leading individuals to pay zero taxes. |
| Keywords: | Tax Regimes;Progressive Taxes;Personal Income Tax;Bunching |
| JEL: | H24 H26 D12 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:idb:brikps:13582&r= |
| By: | Motta Café, Renata; Yarygina, Anastasiya; Escalante, Lisseth |
| Abstract: | A large body of research has estimated the effects on tax collection of informing taxpayers of their obligations. This paper examines the effects on voluntary tax payments of providing taxpayers with information on their obligations that is collected through massive information cross-checking rather than traditional auditing. This information is inexpensive to collect, but may not be sufficiently accurate to promote taxpayer compliance. We conducted a randomized controlled trial to evaluate the effectiveness of self-regularization interventions on tax compliance among simplified tax regime firms. We examine the treatments that use this information in three different ways: messaging, providing tax compliance manuals, and assisted regularization, in which tax auditors assist taxpayers in the self-regularization process. We find that assisted regularization increased the reported monthly income by 20 percent (US$1, 160), which also nearly closed the tax evasion gap and reduced inconsistencies in tax declarations by 67 percent (37-point reduction). The manual and message interventions had positive, albeit smaller, effects. While the assisted regularization intervention had the largest effects, a cost-effectiveness analysis reveals that this intervention is not optimal for smaller firms because of the costs incurred by the tax authority. No effects were observed on firms' tax compliance in declarations filed in the post- intervention periods. |
| Keywords: | public finance;State capacity;Tax evasion;electronic tax audit;tax self-regularization;Simples Nacional |
| JEL: | H26 H32 H71 H83 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:idb:brikps:13603&r= |
| By: | Phitawat Poonpolkｌ (Puey Ungphakorn Institute for Economic Research, Bangkok, Thailand); Ponpoje Porapakkarm (National Graduate Institute for Policy Studies, Tokyo, Japan); Nada Wasi (Puey Ungphakorn Institute for Economic Research, Bangkok, Thailand) |
| Abstract: | We use an overlapping generations model to study the challenge in developing countries with a large informal sector and aging populations. We use Thailand as a case study and incorporate its labor market structure and its public pension system into the calibrated model. Unlike developed countries, workers in developing countries commonly transit from the formal sector to the informal sector, which can be in the early stage of their working life. This labor market feature crucially limits the coverage of the contributory social security system. We find that 66% of Thai elderly (aged 60 years old or over) are ineligible for social security annuity benefits because of an insufficient number of years paying into the social security fund. In addition, we use our model to evaluate two schemes to raise the existing universal basic pension income to the poverty line; namely, uniform benefits and pension-tested benefits. We find that pension-testing effectively improves the targeting efficiency, and non-trivially lower the cost of the basic pension income program. |
| Keywords: | Overlapping generations model, Fiscal sustainability, Pension, Social Security, Thailand |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:ngi:dpaper:22-14&r= |
| By: | Bergeron, Augustin; Kabue Ngindu, Elie; Tourek, Gabriel; L. Weigel, Jonathan |
| Abstract: | Delegating tax collection to informal leaders could raise tax revenue but runs the risk of undermining the local accountability of those leaders. We investigate this trade-off by exploiting whether city chiefs in the Democratic Republic of the Congo (DRC) were randomly assigned to collect property taxes in 2018. To measure accountability, we study the other side of the social contract: the distribution of resources by chiefs in a government cash transfer programme in which they had discretion over the recipients of development aid. In line with the preferences of citizens, chiefs who collected taxes allocated more programme benefits to poorer households and thus made fewer inclusion and exclusion errors. They were no more or less likely to pocket benefits themselves or allocate them to their families. Across a range of measures, citizens appear to have updated their beliefs of chiefs who collected taxes. We provide evidence that collector chiefs allocated aid to poorer households because door-to-door tax collection created opportunities to learn which households were in greatest need. In contrast to concerns of ‘decentralised despotism, ’ the paper thus finds evidence of a chief’s accountability benefiting from delegating tax responsibilities to local leaders in low-capacity states. |
| Keywords: | Finance, |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:idq:ictduk:18396&r= |
| By: | Michelle Escobar Carías (The University of Melbourne, Department of Economics); Nicole Black (Monash University, Monash Business School, Centre for Health Economics); David Johnston (Monash University, Monash Business School, Centre for Health Economics); Rohan Sweeney (Monash University, Monash Business School, Centre for Health Economics); Fiona S. Barker (Monash University, School of Public Health and Preventive Medicine, Faculty of Medicine, Nursing and Health Sciences); Rosnaena (RISE Program Indonesia); Syaidah Syamsul (RISE Program Indonesia); Taniela Waka (RISE Program Fiji) |
| Abstract: | We document gender differences in children’s time investments in education, labour, and leisure in an understudied population of children living in urban informal settlements. Using within-settlement and within-sibling comparisons, we find that boys spend significantly less time than girls on schooling and homework and more time on leisure activities. We also find that caregivers invest less time in helping their sons with reading and homework than their daughters. One possible explanation is that girls spend more time on domestic work. As a result, as the share of girls in the household increases, primary caregivers spend less time on domestic work and more time on other activities such as teaching children. We find that the gender gaps in time use are more pronounced among children whose parents have lower schooling and more financial constraints. |
| Keywords: | Gender gap, Time Use, Education, Informal Settlements |
| JEL: | I24 I25 I30 J22 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:mhe:chemon:2024-10&r= |
| By: | ASIANI, Freddy |
| Abstract: | The General Labor Inspectorate (IGT) in the Democratic Republic of Congo (DRC) plays a crucial role in regulating working conditions and protecting workers' rights. This article examines the structures and functions of the IGT, highlighting key challenges it faces, such as compliance with international labor standards, corruption, lack of resources, and inadequate inspector training. Additionally, the article analyzes specific challenges related to labor law enforcement in a context of high economic informality and geographic diversity. Finally, recommendations are made to enhance the IGT's effectiveness, including institutional reforms, improving inspector capacities, and increased collaboration with social and international partners. |
| Keywords: | General Labor Inspectorate, Democratic Republic of Congo, labor standards, corruption, economic informality, institutional reform, workers' rights. |
| JEL: | J80 J83 K31 O1 O17 P37 |
| Date: | 2024–07–02 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121371&r= |
| By: | Karina Acosta; Juliana Jaramillo-Echeverr; Daniel Lasso; Alejandro Sarasti-Sierra |
| Abstract: | Se estima que más del 50 % de la población laboral en Colombia pertenece al sector informal, un fenómeno persistente durante las últimas tres décadas. A pesar de la amplia literatura sobre la informalidad laboral y sus determinantes a nivel nacional o en las principales áreas urbanas, las tasas de informalidad municipales permanecen inexploradas en el país, debido a la falta de disponibilidad y calidad de los datos. En general, la información necesaria para medir la informalidad subnacional, ya sea a través del tamaño de la empresa, la afliación al régimen contributivo o la existencia de un contrato escrito, es escasa o incompleta, lo que difculta una estimación directa. En este trabajo se propone un ejercicio de medición para avanzar en el estudio de la informalidad en Colombia, estimando la informalidad laboral municipal entre 2005 y 2021. Los resultados muestran que, aunque la informalidad es persistentemente alta, está fuertemente concentrada. Además, se observa que, aunque la informalidad cayó paulatinamente entre 2005 y 2016 en todos los municipios, aquellos con tasas de informalidad más altas experimentaron un retroceso en estas ganancias en 2021. **** ABSTRACT: It is estimated that more than 50 % of the labor force in Colombia belongs to the informal sector, a persistent phenomenon over the last three decades. Despite extensive literature on informality and its determinants at the national level or in the main urban areas, municiapl informality rates remain unexplored in the country due to the lack of availability and quality of data. In general, the information necessary to measure sub-national informality, whether through frm size, afliation to social security, or the existence of a written contract, is scarce or incomplete, making direct estimation difcult. This study proposes a measurement exercise to contribute to the study of informality in Colombia, estimating municipal informality between 2005 and 2021. The results show that, although informality is persistently high, it is strongly concentrated. Furthermore, it is observed that, although informality gradually declined between 2005 and 2016 in all municipalities, those with higher informality rates experienced a setback in these gains in 2021. |
| Keywords: | informalidad, estimaciones en áreas pequeñas, clústeres, LISA, Colombia, informality, small area estimation, clusters, LISA, Colombia |
| JEL: | J46 O17 O54 R23 C38 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:bdr:region:327&r= |