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on Informal and Underground Economics |
| By: | Daniel Jaar; Joao Ritto |
| Abstract: | We develop a dynamic general equilibrium model with heterogeneous households and a cash-intensive informal sector that replicates two empirical patterns: the negative relationship between informality and firm productivity, and the declining share of informal consumption with household wealth. The non-homotheticity of informal consumption implies that tax incidence is heterogenous: poor households pay less consumption taxes but are more exposed to inflation. We use the model to study the distributional effects of financing government revenue through seigniorage versus consumption taxes. Calibrated to Peru – where informality accounts for around half of economic activity – the model shows that informal purchases provide significant savings through lower prices, particularly for poor households, who save up to 11% compared to purchasing the same bundle formally. The model also uncovers substantial variation in preferences over revenue-neutral combinations of inflation and consumption taxes: households in the top expenditure decile would like inflation to be as high as 12%, while those in the bottom favor inflation below 5%. This disagreement grows with the size of the informal sector. |
| Keywords: | Informality; Inflation; Public Finance; Inequality |
| JEL: | E62 H22 O17 |
| Date: | 2025–10–27 |
| URL: | https://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-805 |
| By: | Islam, Asiya; Galeano Alfonso, Silvana; Lorena Pla, Jésica |
| Abstract: | Building on recent interventions in platform work scholarship that centre social reproduction and draw attention to informal economies in the Global South, this paper advances a ‘working lives’ framework to account for the entanglements of production/reproduction, informality and precarity, and gender norms in the shaping of platform work. Based on interviews with women engaged in delivery work through digital platforms in Buenos Aires, Argentina and Delhi, India, the paper shows that women enter platform delivery work compelled by adverse socio-economic conditions and work-life histories of informality. Women organise their participation in platform delivery work, making use of its location flexibility, for and around the needs of the household. Further, they operationalise this flexibility to navigate gendered constraints, such as, curtailed radius of work to ensure safety and continued responsibility for housework and childcare. The paper, empirically novel in accounting for narratives of women in the Global South, offers the analytical framework of ‘working lives’, combining long-term and place-based perspectives with everyday perspectives, with attention to social norms, for research on platform work globally. |
| Keywords: | digital technology; gender inequalities; Global South; informality; platform work; precarity; social reproduction |
| JEL: | R14 J01 |
| Date: | 2025–10–20 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:128920 |
| By: | Alejandro Esteller-Moré; José María Durán-Cabré; Christos Kotsogiannis; Luca Salvadori |
| Abstract: | Enforcing wealth tax compliance among high-net-worth individuals is particularly challenging. Using administrative data on the Net Wealth Tax for Catalan taxpayers over the 2011–2020 period, this paper evaluates the impact of audits on voluntary compliance. The evidence suggests that wealth tax audits do enhance compliance, but the impact is short-lived — and driven by taxpayers rebalancing their tax evasion and avoidance responses. On the institutional side, the results indicate that Spain's overlapping tax audit mandates can create coordination frictions that reduce the efficiency and effectiveness of audit-based enforcement of the New Wealth Tax. Effective enforcement depends not only on robust audit strategies, but also on coherent institutional design and sound tax policy. |
| Keywords: | overlapping tax audit mandates, tax audit evaluation, tax compliance, Tax evasion, wealth tax |
| JEL: | H26 D31 O17 D02 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:bge:wpaper:1527 |
| By: | Jean-Marc B. Atsebi; Nikolay Gueorguiev; Manabu Nose |
| Abstract: | Building on previous studies, we propose a robust estimation strategy to uncover the causal effects of tax administration strength on tax revenue in 121 countries over the period 2014–2022. Our novel approach utilizes a unique expert survey to construct an Operational Strength Index of tax administration, using the International Survey on Revenue Administration (ISORA), and employs an instrumental variable strategy based on the IMF Fiscal Affairs Department’s Capacity Development programs. We find that strengthening tax administration significantly boosts tax revenue, particularly in emerging and developing economies, and especially in countries with lower levels of informality, stronger institutions, and higher financial development. These findings carry important policy implications for governments and development partners aiming to enhance tax administration capacity and strengthen public finances overall. |
| Keywords: | Tax Administration; Tax Policy; ISORA |
| Date: | 2025–10–24 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/219 |
| By: | Esteban Mu\~noz-Sobrado |
| Abstract: | This paper proposes a model of tax compliance and fiscal capacity grounded in universalization reasoning. Citizens partially internalize the consequences of concealment by imagining a world in which everyone acted similarly, linking their compliance decisions to the perceived effectiveness of public spending. A selfish elite chooses between public goods and private rents, taking compliance as given. In equilibrium, citizens' moral internalization expands the feasible tax base and induces elites to allocate resources toward provision rather than appropriation. When the value of public spending is uncertain, morality enables credible reform: high-value elites can signal their type through provision, prompting citizens to increase compliance and raising fiscal capacity within the same period. The analysis thus identifies a moral channel through which states may escape low-capacity traps even under weak institutions. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2510.17481 |
| By: | Fadzayi Chingwere; Aimable Nsabimana; Kunal Sen |
| Abstract: | How does political alignment with the ruling party influence the audit outcomes of the firms? This paper investigates whether political alignment with the ruling party influences the intensity and outcomes of firm audits in South Africa. Using a regression discontinuity design based on close provincial election results from 2014, we examine how firms are treated in municipalities narrowly won versus narrowly lost by the African National Congress (ANC). |
| Keywords: | Elections, Audits, Firms, Tax evasion, South Africa |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:unu:wpaper:wp-2025-75 |