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on Informal and Underground Economics |
| By: | Tassi, Annalisa; Bussy, Adrien |
| Abstract: | We investigate whether firms engage in VAT evasion at the retail stage-typically a point of weakness in VAT systems-in a high-enforcement, low-informality setting. To measure evasion, we exploit a reform of VAT rules (the reverse charge, RC) whereby retailers do not only remit taxes on their own value-added, but on that created along the entire supply chain, increasing their incentive to evade. Using German administrative firm-level VAT return data and an instrumental variable approach based on RC's staggered introduction, we find no evidence of greater evasion under RC. Our results suggest that evasion at the retail stage might not be quantitatively important in high-enforcement and low-informality settings, implying little need to enlist consumers in tax enforcement to boost tax compliance. |
| Keywords: | Value Added Tax, VAT, Reverse Charge Mechanism, Tax Evasion, Withholding, Last-Mile Problem |
| JEL: | H21 H26 D22 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:zewdip:333931 |
| By: | Bohne, Albrecht; Nimczik, Jan Sebastian |
| Abstract: | We evaluate a tax reform in Ecuador that introduced generous deductions from personal income taxes (PIT), encouraging consumers to request receipts. The reform addresses tax evasion by targeting small self-employed businesses that mainly sell goods or services not subject to VAT but often evade income taxes. Exploiting plausibly exogenous variation in receipt demand due to the distribution of taxpayers across regions and professions, we find significant increases in reported profits among self-employed businesses exposed to the reform. We document spillover effects on the VAT system. Our net-revenue impact analysis suggests that the additional tax payments outweigh the foregone tax revenue. |
| Keywords: | Formalization, Tax Avoidance, VAT, Personal Income Tax |
| JEL: | O17 H26 H24 H25 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:zewdip:333929 |
| By: | Nicolas Ajzenman (McGill University); Martín Ardanaz (Inter-American Development Bank); Guillermo Cruces (Universidad de San Andrés-CONICET, University of Nottingham); Germán Feierherd (Universidad de San Andrés); Ignacio Lunghi (New York University & CEDLAS-IIE-UNLP) |
| Abstract: | Corruption—and the widespread perception of it—poses significant obstacles to development by eroding institutional trust and reducing citizens’ willingness to pay taxes. Yet, government efforts to improve public perceptions by combating corruption may prove ineffective—or even backfire—when confronted with entrenched pessimistic beliefs. We propose that providing an external benchmark of corruption to shift the reference point before highlighting government actions can mitigate these negative effects. In a survey experiment exploiting an institutional reform within Honduras’ tax agency, we find that messages focusing solely on reform efforts have limited or negative effects. By contrast, a combined message that first corrects pessimistic beliefs and then highlights anti-corruption efforts significantly reduces perceived corruption and tax evasion intentions. A field experiment with approximately 45, 000 taxpayers confirms that this sequencing approach increases actual tax compliance. These findings suggest that belief updating is possible—but only when information is structured to first engage and recalibrate skeptical priors. |
| Keywords: | Corruption, Tax Administration, Tax Evasion, Field Experiment |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:sad:wpaper:173 |
| By: | Jeanne Bomare (Centre for the Analysis of Taxation, London School of Economics); Ségal Le Guern Herry (Aix-Marseille Univ., CNRS, AMSE, Marseille, France) |
| Abstract: | The 2014 Automatic Exchange of Information (AEoI) represents the most comprehensive global effort to combat tax evasion by enabling cross-border information exchange on financial assets. We examine how this policy shifted offshore investment behavior. While the AEoI mandates reporting of financial assets, it excludes real estate holdings. Using administrative data on UK real estate purchases by foreign companies, we show that offshore users substituted financial assets for real estate in response to the new transparency regime. Our findings suggest that real estate assets now account for a growing share of offshore portfolios, partly due to their exclusion from the AEoI. |
| Keywords: | Tax Enforcement, real estate, Hidden Wealth |
| JEL: | D31 R30 H26 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:aim:wpaimx:2523 |
| By: | Borgonovi, Francesca (OECD); Checchi, Daniele (University of Milan); Gualtieri, Valentina (INAPP – Institute for Public Policy Analysis) |
| Abstract: | This paper estimates labour-market returns to formal and informal human capital in Italy using data from the first cycle of PIAAC. We distinguish formal inputs (years of schooling) from directly assessed skills (literacy and numeracy) which we interpret as distinct forms of human capital that are shaped by school quality and by non-formal and informal learning. To address non-random employment and joint endogeneity of schooling and skills, we combine a Heckman selection model with instrumental variables. Schooling is instrumented using cohort exposure to the 1971 introduction of full-day primary schooling and the 1999–2001 Bologna ‘3+2’ university reform; skills are instrumented using gender- and cohort-specific municipal illiteracy rates from population censuses, matched by birthplace. Results show that ignoring selection and endogeneity overstates the returns to schooling. After correction, numeracy yields the main wage premium, while formal credentials contribute little once skills are accounted for. The findings highlight the role of early cultural environments and skill accumulation for Italian wage inequality in Italy. |
| Keywords: | credentials, schooling, skill, Italy |
| JEL: | J24 I26 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18355 |
| By: | Poudel, Dixit; Gopinath, Munisamy |
| Abstract: | While road infrastructure is widely recognized as a driver of economic development, can it also aid in disaster resilience? This paper investigates whether India’s national highway corridors—the Golden Quadrilateral and the North-South and East-West—can buffer production losses from extreme floods in informal manufacturing. Motivated by a structural model of disaster resilience at the plant level, the study examines the effects of dual and staggered treatments: floods and roads. It combines geospatially matched, staggered flood exposure data from the Dartmouth Flood Observatory with phased highway rollout timelines from the National Highways Authority of India and repeated cross-section survey data (1990–2016) on Indian informal manufacturing. Exploiting quasi-random variation in the timing of flood exposure and road construction, the study implements a stacked difference-in-differences design, matching treated districts to future treated counterparts. Results show that floods significantly reduce both gross output and value added, while highway access counteracts those losses. Plants located directly on completed highway segments nearly neutralize the average 7 percent flood-related output loss, benefiting from both higher output and lower input expenditures—labor, materials, and energy. These effects are magnified for plants that own transport equipment, highlighting a complementarity between internal logistics and external infrastructure. Off-highway plants exhibit similar resilience only when they possess transport assets, enabling access to distant road networks. Overall, the findings reveal that roads are not only engines of development but also critical enablers of resilience. Designing infrastructure with this dual function—development and resilience—is essential for building a climate-smart and resilient informal production economy. |
| Keywords: | International Development |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ags:aaea25:360978 |
| By: | Salah, Amel |
| Abstract: | This paper aims to explore the relationship between corporate social responsibility and tax avoidance among publicly listed banks, based on their annual reports and websites within a developing market, specifically Tunisia. The necessary data were collected from the annual reports of a sample of nine Tunisian banks listed on the Tunis Stock Exchange (BVMT) for the period from 2012 to 2018. According to the estimated results, it can be concluded that the less involved banks are in economic and environmental activities, the more likely they are to engage in fraudulent tax-related behaviors. The findings indicate that a bank’s tax avoidance is influenced by the nature of its social responsibility activities. In particular, banks that participate in social initiatives are less prone to evade taxes. |
| Keywords: | corporate social responsibility, tax avoidance, BVMT. |
| JEL: | G3 H26 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127478 |
| By: | Bohne, Albrecht; Hines, James R.; Koumpias, Antonios M.; Tassi, Annalisa |
| Abstract: | The purpose of this paper is to evaluate the effect of reverse-charge mechanism (RCM) implementation on VAT compliance using an overall, countrylevel measure of VAT compliance, the VAT gap. The VAT gap is defined as the overall difference between expected and realized VAT revenues and is a broader measure than outcomes employed in previous research, incorporating all types of VAT evasion. Exploiting the staggered adoption of RCM across Europe and the size of industries targeted by RCM, we compare changes in the VAT gap before and after RCM implementation. Evidence from difference-in-differences, event study, and heterogeneous treatment effects estimators indicates that the adoption of the RCM does not lead to significant EU-wide changes on the aggregate VAT gap. Moreover, our results illustrate the mixed impacts of RCM on different goods and industries, with measurable decreases in VAT losses in the construction and industrial crops industries. This study's findings do not provide strong support for policy changes that cast the net of the RCM wider on all industries and EU member states, although bilateral coordination in RCM adoption with top trading partners may assist in curbing VAT fraud relocation. |
| Keywords: | Tax evasion, VAT, VAT gap, reverse-charge mechanism, carousel fraud |
| JEL: | H26 K42 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:zewdip:333928 |
| By: | Deininger, Klaus; Ali, Daniel A. |
| Abstract: | This paper uses a rich set of geo-coded administrative and remotely sensed data on more than 1 million agricultural land transactions in Ukraine to explore how informality, size, and recent land reforms affect land prices. Three main findings are highlighted. First, absence of registered rights generates large negative externalities, the size of which plausibly exceeds the cost of registering all land. By contrast, informality of lease contracts is a choice that may enable owners to evade regulatory obstacles that prevent them from renegotiating contracts to obtain more favorable terms. Second, while land market liberalization generated significant indirect benefits, gains are unevenly distributed. Furthermore, competition in sales markets remains limited, pointing to scope for measures—including reducing the transaction costs of selling land and accessing mortgage finance, improving publicity of pending land sales, and use of electronic auctions—to enhance the reforms’ impact on efficiency and equity. Third, size at the parcel, field, and farm levels is associated with higher per hectare prices, pointing to scope for market-based land consolidation and growth of medium-size farms to increase land values and productivity. Achieving this potential will require measures to limit speculative land acquisition and exercise of market power by making local land markets more competitive and using market-based land valuation as a basis for taxing land on a recurrent basis and any capital gains due to land appreciation. |
| Keywords: | International Development |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ags:aaea25:361025 |