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on Informal and Underground Economics |
| By: | James Alm (Tulane University); Jay A. Soled (Rutgers University); Kathleen DeLaney Thomas (University of North Carolina School of Law) |
| Abstract: | While attaining perfect tax compliance is unachievable, more can and must be done. In the past, the country has relied primarily on a traditional system of sticks (e.g., audits and penalties) and carrots (e.g., refunds and whistleblower awards) to help narrow the âtax gap, â or the difference between what taxpayers owe in taxes and what they actually pay. Now, in the social media era, Congress and the Internal Revenue Service (IRS) should look beyond these traditional enforcement mechanisms. To achieve an even higher voluntary compliance rate, this article advocates for policymakers to invest greater resources to enhance the social norm related to tax compliance. While scholars have long suggested that social norms play a role in tax compliance, this article suggests a revolutionary approach, one that attempts to foster a social norm of compliance by employing the use of social media influencers. The internet and other electronic media have revolutionized and amplified the stunning impact that influencers can have. Virtually everyone, particularly the younger generation, is keenly aware of the dramatic impact that influencers can have in shaping social norms. Now is thus the time for Congress and the IRS to capitalize on this power by strategically employing social media influencers. A well-crafted influencer campaign could educate taxpayers on how to fulfill their tax obligations, remind taxpayers of the laudatory impact of the tax system, and foster a positive social norm of compliance. Such a change in compliance orientation could help policymakers narrow the tax gap, yielding billions of dollars of additional tax revenue without the need to raise tax rates. |
| Keywords: | Tax compliance, tax gap, social norms, social media, influencers, nudges |
| JEL: | H2 H26 D91 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:tul:wpaper:2413 |
| By: | Junttila, Juho; Koivisto, Aliisa; Nivala, Annika |
| Abstract: | Many countries use a reverse charge mechanism (RC) in value added tax (VAT) to combat tax evasion in specific high-risk sectors. The RC shifts the liability to remit VAT from the seller to the buyer. We study the adoption of RC in 2011 in the construction sector in Finland using tax return data on the universe of Finnish firms. Using a difference-in-differences design, we find that reported net VAT liabilities in the construction sector increased by 5% compared to unaffected firms. The results show that the remittance policy can be effective in decreasing VAT evasion by subcontractors that provide services for large firms. |
| Keywords: | tax compliance, value added tax, reverse charge mechanism, firm behavior, Business taxation and regulation, H25, H26, L74, O17, Z18, fi=Verotus|sv=Beskattning|en=Taxation|, |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:fer:wpaper:170 |
| By: | Matteo Neri-Lainé (Paris School of Economics, LEDa, DIAL, Université Paris-Dauphine, PSL, IRD, CNRS, Paris, France) |
| Abstract: | This paper studies the effect of insecurity on formal firms’ existence. We develop a flexible theoretical framework in which insecurity affects firms’ market entry, exit, and formality decisions. In our empirical analysis, we combine an original dataset on Afghan firms with georeferenced data on military events during the post-2003 Afghan conflict. In such a state-building context, exposure to military events has an average positive effect on formal firms’ existence. Nonetheless, this effect is highly heterogeneous depending on actors, location, timing and firms’ characteristics. The Afghan conflict has the specificity of deeply involving foreign countries. Mobilising this particular source of exogenous variation, we identify insecurity’s causal effect on formal firms’ existence. We show that an increase of 1% in the exposure to instrumented military events raises the formal activity probability by 4.17%. |
| Keywords: | Conflict, Formality, Firms, Insecurity, Heterogeneity, Afghanistan |
| JEL: | D74 D22 D24 F51 O17 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:dia:wpaper:dt202409 |
| By: | Octavio Bertín (CEDLAS-IIE-FCE-UNLP); Guillermo Cruces (CEDLAS-IIE-FCE-UNLP & University of Nottingham); Fabian Enrique Gonzalez (CEDLAS-IIE-FCE-UNLP); Ignacio Lunghi (CEDLAS-IIE-FCE-UNLP); Azul Menduiña (CEDLAS-IIE-FCE-UNLP) |
| Abstract: | This study assesses the impact of a hiring credit policy introduced in Argentina in 2014 on various labor outcomes of firms. The reform established differentiated labor cost reductions in the employers contributions to be paid for their new employees, according to the size that firms had at a date prior to the announcement of the policy. Using a differences-in-differences approach and employer-employee administrative data, we analyze the intervention’s effects. Our results show a significant 4.1 percentage point increase in employment growth rates for small firms compared to medium-sized ones, persisting for several years post-reform. This paper also explores the relationship between the intervention’s effects and sector labor informality; we find a significant 6.2 percentage point increase in employment growth rates for firms in high-informality sector, whereas no significant effect is found for firms in low-informality sectors. |
| JEL: | C31 J08 J23 O17 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:dls:wpaper:0342 |
| By: | Luis Armando Galvis-Aponte |
| Abstract: | Este documento analiza la informalidad laboral urbana en Colombia, destacando su relación con el nivel educativo, las desigualdades de género y las brechas regionales. Utilizando datos de la Gran Encuesta Integrada de Hogares (GEIH) para las veintitrés principales áreas metropolitanas entre 2010 y 2023, se estiman las probabilidades de informalidad mediante un modelo probit con variable endógena, que permite abordar la relación entre la educación y la informalidad laboral empleando variables instrumentales. Los resultados muestran que cada año adicional de educación está asociado con una disminución de más de dos puntos porcentuales en la probabilidad de ser informal. El análisis también revela diferencias significativas entre hombres y mujeres, con una mayor incidencia de informalidad en las mujeres, especialmente en las regiones Caribe y Pacífica, que enfrentan condiciones económicas más precarias. A pesar de las mejoras en la formalización observadas en los últimos años, las brechas de género y región persisten, destacando la desigualdad estructural en el acceso a empleos formales. Estos hallazgos subrayan la importancia de implementar políticas públicas que promuevan la formalización del empleo, reduzcan las desigualdades de género y aborden las disparidades regionales, fomentando la inclusión laboral en las áreas más afectadas del país. **** ABSTRACT: This paper examines urban labor informality in Colombia, highlighting its relationship with educational attainment, gender inequalities, and regional disparities. Using data from the Gran Encuesta Integrada de Hogares (GEIH) for the 23 main metropolitan areas between 2010 and 2023, the probabilities of informality are estimated through a probit model with an endogenous variable, which addresses the relationship between education and labor informality by using an instrumental variable approach. The results show that each additional year of education is associated with a reduction of more than two percentage points in the probability of being informal. The analysis also reveals significant differences between men and women, with a higher incidence of informality among women, particularly in the Caribbean and Pacific regions, which face more precarious economic conditions. Despite improvements in formalization observed in recent years, gender and regional disparities persist, underscoring structural inequality in access to formal employment. These findings underline the importance of implementing public policies that promote employment formalization, reduce gender inequalities, and address regional disparities, fostering labor inclusion in the most affected areas of the country. |
| Keywords: | informalidad, educación, género, economía urbana, labor informality, education, gender, urban economics |
| JEL: | E26 I26 J16 R00 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:bdr:region:332 |