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on Informal and Underground Economics |
| By: | Giulia Aliprandi (EU Tax Observatory); Thijs Busschots (EU Tax Observatory); Carlos Oliveira (EU Tax Observatory) |
| Abstract: | This note examines the global prevalence and distribution of shell companies, which are often used for illicit financial activities like tax evasion. Using business registry data for over 200 jurisdictions, including individual US states, we construct an indicator of shell company prevalence based on the number of registered companies per capita. We find that known tax havens like the British Virgin Islands and the Cayman Islands have extremely high rates of company presence per adult. Zooming in on Europe reveals Estonia as a lesser-known host for shell companies, besides flagging known conduit countries like Luxembourg and Cyprus. A unique decomposition of US states also shows Delaware and Wyoming are potentially hosting a large number of shell companies. Indicative for the role of shell companies in international tax evasion, our shell company prevalence indicator correlates with jurisdiction characteristics catering tax evasion, such as low corporate tax rate and aggressive tax treaties. |
| Keywords: | Shell companies, tax evasion, business registries |
| JEL: | H26 K34 F38 |
| Date: | 2023–12 |
| URL: | https://d.repec.org/n?u=RePEc:dbp:plnote:009 |
| By: | José María Durán-Cabré (Universitat de Barcelona & IEB); Alejandro Esteller-Moré (Universitat de Barcelona & IEB) |
| Abstract: | We analyse whether decentralisation affects tax morale through both greater trust in institutions (the carrot) and greater perceived tax enforcement (the stick), two drivers of compliance that operate via the promotion of voluntary compliance and deterrence, respectively. We take advantage of the Spanish case characterised by a general regime, which is partially decentralised, and the so-called foral regime, operated in two regions, which is fully decentralised (i.e. high tax regulatory and administrative powers). We draw on data from a unique survey that are representative both of the national level and of the foral regions. Under the foral regime, the average citizen neither presents a higher level of tax morale, nor has the perception of a higher level of enforcement. Thus, any structuring of the tax administration within a federal system cannot be based on what are presumed to be higher levels of compliance resulting from the decentralisation of the administration. |
| Keywords: | Fiscal Federalism, Decentralisation, Tax Morale, Tax Compliance, Survey Data |
| JEL: | H11 H71 H77 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ieb:wpaper:doc2025-02 |
| By: | Salim Ergene |
| Abstract: | This paper studies optimal government interventions to recapitalize corporations under tight financial conditions. The policymaker can finance the recapitalization program through income taxes and an inflation tax on money holdings. However, households operating the labor-intensive production technology can evade their tax obligations. Growing tax evasion raises the tendency to monetize interventions. Partially monetizing recapitalization yields welfare gains, as an inflation tax reallocates resources from less to more productive sectors. However, financing unproductive government spending through seigniorage revenue becomes an inferior policy, as contemporaneous inflation costs outweigh the expansionary effects of fiscal policy. Pecuniary externalities generate scope for macroprudential policies, mitigating the effects of financial shocks. |
| Keywords: | Tax evasion, Recapitalization, Currency mismatch, Depreciation |
| JEL: | E12 E41 E26 E58 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:tcb:wpaper:2507 |
| By: | Nicolás González-Pampillón (Centre for Economic Performance (CEP) - LSE & IEB); Javier Vázquez-Grenno; Universitat de Barcelona & IEB |
| Abstract: | This paper examines the impact of a substantial minimum wage increase in Uruguay—a middle-income developing economy—on wages and employment. Using administrative data and a difference-in-differences approach, we analyze the consequences of a 2005 policy reform that raised the real minimum wage by 80% within a year. Our findings show that the reform led to significant wage gains for low-wage earners, with at most minimal negative effects on employment. Survey data further reveal no significant changes in unemployment or informality, suggesting the reform did not distort labor market dynamics. To contextualize these results, we investigate compliance with minimum wage laws and document a post-reform decline in compliance, particularly among low-wage workers. This pattern aligns with firms’ cost-benefit trade-offs under weak enforcement of wage regulations. Our study contributes to the literature by providing causal evidence on the labor market effects of minimum wage policies in a developing economy, underscoring the pivotal role of enforcement in shaping policy outcomes. |
| Keywords: | Minimum wage, labour market, compliance with the law. |
| JEL: | J23 J38 J88 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ieb:wpaper:doc2025-06 |
| By: | Kevin Grieco; Abou Bakarr Kamara; Niccolo F. Meriggi; Julian Michel; Prichard Wilson |
| Abstract: | Building durable fiscal capacity requires that states obtain compliance with their taxes - a persistent challenge for states with low enforcement capacity. One promising option for governments in weak states is to raise voluntary compliance by enhancing governmental legitimacy. This study reports results from a participatory budgeting policy experiment in Sierra Leone designed to increase legitimacy and tax compliance by inviting public par- ticipation in local policy decision-making. In phone-based town halls, participants shared policy preferences with neighbors and local politicians and then voted for public services that were subsequently implemented. We find that the intervention durably increased participants’ perceptions of government legitimacy. However, contrary to influential models of tax compliance, we report a robust null effect on tax compliance behavior. Participants’ partisan affiliation strongly conditions the treatments’ effects on tax compliance and attitudes toward paying taxes: We find large, positive impacts among copartisans of the incumbent government but significant negative impacts among non-copartisans. Our results highlight that the legitimacy gains of participatory interventions may not increase voluntary tax compliance when participation politicizes compliance. |
| Keywords: | fiscal capacity; participatory budgeting; taxation; legitimacy; state building |
| JEL: | H20 D72 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:csa:wpaper:2025-05 |
| By: | Cortés, Darwin; Gallegos, Andrés; Pérez Pérez, Jorge |
| Abstract: | We analyze the e ect of adverse health shocks on households' expenditure shares in different good categories using a xed-e ects approach and a structural approach based on microeconomic theory. We nd that, on average, households substitute health and food expenditure in response to adverse health shocks. Our estimates unveil substantial heterogeneity in this trade-o mediated by access to social protection, job contract type, and urban or rural location. Households from rural areas -where household heads are more likely to hold informal jobs and lack access to safety nets- engage in more substitution of food expenditure for health expenditure than others. Our ndings suggest that access to formal employment and a higher quality of local institutions can help mitigate the negative consequences of health shocks for households. |
| Keywords: | health shocks, household expenditure, informal labor, urban-rural |
| JEL: | D12 I15 J46 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:rie:riecdt:114 |
| By: | Giulia Aliprandi (EU Tax Observatory) |
| Abstract: | The Australian government is implementing a new public Country-by-Country Reporting (CbCR) regime to enhance tax transparency for large multinational enterprises. This note analyzes the key aspects of the Australian Public CbCR legislation, how it compares to other reporting standards, its potential impact, and blind spots. The analysis reveals that while the Australian Public CbCR legislation aligns with global trends and initiatives, there are mismatches in the requirements implemented across different countries, which may leave gaps in transparency. To maximize effectiveness, there is a need to align with the best global transparency practices and avoid creating new loopholes. The note estimates that approximately 50% of large US companies and a significant portion of multinationals from countries like China, Japan, and Germany will potentially have to disclose information on their tax haven presence. However, some key tax havens are missing from the draft list of countries required for disaggregated reporting. Australia should not rely on the EU CbCR directive to improve transparency on European tax havens but include them in the list of countries to be disclosed. |
| Keywords: | Public CbCR, tax transparency, multinational enterprises |
| JEL: | H26 F23 M48 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:dbp:plnote:012 |
| By: | Xu, Lei (Loughborough University); Tani, Massimiliano (UNSW Canberra); Zhu, Yu (University of Dundee); Wen, Xin (UNSW Canberra) |
| Abstract: | We investigate the impact of China’s 2014 hukou reform - a major change allowing migrants living in small and medium-sized cities of less than 5 million people to apply for urban residence - on formal and informal borrowing at a time of rapid economic transformation. We find that the hukou policy change has predominantly increased natives’ access to finance, especially through informal sources, and for investments in housing. We also find that the policy affects households differently according to education level, with more educated households borrowing more to capitalise on rising asset prices driven by the ‘additional’ urban population created by the policy. |
| Keywords: | formal and informal debt, hukou reform, migrants |
| JEL: | D14 G51 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17990 |