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on Informal and Underground Economics |
| By: | Gemmell, Norman; Hasseldine, John |
| Abstract: | The work of Feldstein (1995, 1999) has stimulated substantial conceptual and empirical advances in economists’ approaches to analysing taxpayers’ behavioural responses to changes in tax rates. Meanwhile, a largely independent literature proposing and applying alternative measures of tax compliance has also developed in recent years, which has sought to provide tax agencies with tools to identify the extent of tax non-compliance as a first step to designing policies to improve compliance. In this context, measures of ‘tax gaps’ – the difference between actual tax collected and the potential tax collection under full compliance with the tax code – have become the primary measures of tax non-compliance via (legal) avoidance and/or (illegal) evasion. In this paper we argue that the tax gap as conventionally defined is conceptually flawed because it fails to capture behavioural responses by taxpayers. We show that, in the presence of such behavioural responses, tax gap measures both for indirect taxes (such as the ‘VAT-gap’) and direct (income) taxes exaggerate the degree of noncompliance. Further, where these conventional tax gap measures motivate reforms designed to increase the tax compliance rate, they will likely have a tax base reducing effect and hence generate a smaller increase in realised tax revenues than would be anticipated from the tax gap estimate. |
| Keywords: | Behavioural responses, Taxpayers, Tax rate changes, Tax policy, Compliance, |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:vuw:vuwcpf:2853&r=iue |
| By: | Angel Solano-Garcia (Globe and Department of Economic Theory and Economic History, University of Granada.) |
| Abstract: | This paper analyzes the political economy of income redistribution when voters are concerned about tax compliance. We consider a two stagemodel where there is a two party competition over the tax rate in the first stage and voters decide about their level of tax compliance in the second stage. We model political competition à la Wittman with the ideology of parties endogenously determined at equilibrium. We calibrate the model for an average of EU-27 countries. Numerical simulations provide the tax rates proposed by the two parties and the level of tax compliance. We find that a decrease in confidence in tax morale, and an increase in parties’ uncertainty about the preferences of the median voter increase the probability that the party offering the lowest income tax will win and decrease tax compliance. |
| Keywords: | tax evasion, ideological parties, income redistribution, ethical voters. |
| JEL: | D72 H26 |
| Date: | 2013–07–09 |
| URL: | http://d.repec.org/n?u=RePEc:gra:wpaper:13/06&r=iue |
| By: | Nguyen, Thi Minh Hieu; Nguyen, Thi Huong Giang; Vu, Thi Minh Ngoc; Nguyen, Viet Duc |
| Abstract: | This paper examines impacts of income from informal employment and informal sector employment on poverty in Vietnam to define whether the informal economy is an accelerator or a decelerator of poverty. Using data from Vietnam Household Living Standard Surveys, we find that although income from informal sources does not account for a large proportion to total income of the poor households in comparison with the non-poorhouseholds, it significantly contributes to poverty reduction. Without earnings from informal sources, 33.4 per cent of the surveyed households in 2010 live under the poverty line and this rate is only 10.34 per cent if informal income is added up. Both probit and quantile analysis affirms that informal earnings significantly mitigate poverty. Interesting findings from quantile regression are that informal earnings have divergent effects across distribution of household income. Particularly, it is a factor reducing poverty in poor households but it negatively affects the economic capacity of the rich households. The policy implication derived from empirical results is that poverty program should be associated with supporting policy for informal employees with low income so that they can improve their living standards. |
| Keywords: | informal economy, poverty |
| JEL: | I32 O17 |
| Date: | 2013–07–17 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:48378&r=iue |
| By: | Arief Anshory Yusuf (Department of Economics, Padjadjaran University); Irlan Adiyatma Rum (Department of Economics, Padjadjaran University) |
| Abstract: | Using a long series of household level survey data and more information on regional variation in the poor's living cost and inflation, we estimated the proportion of people living below 2005 PPP $2 a day. We found that for the period of 1990 to 2012, the $2 poverty incidence has been declining at an average rate of 2.2% per year leaving only 36.5% in 2012. The rate of the decline in the last ten years (or reformasi era, 2002-2012) has been faster (2.9% a year) than during the pre-reformasi era or the period of 1990-1996 (1.4% a year). This is in contrast to a rather slow rate of the decline in the poverty incidence with national poverty line during the reformasi era which was only 0.65% a year. We also found thatthe $2 poverty has been more concentrated among informal labor and agricultural workers. The difference between $2 poverty incidence in formal and informal labor was larger during the reformasiera, a sign that the informal labor has been rather left behind. During the reformasi era, the economic growth was a lot more income-inequalizing and a lot less pro-poor relative to growth during the period before the reformasiera. This applies to both the poor defined as those living below national poverty line or those living below $2 a day. |
| Keywords: | poverty, $2 per day, Indonesia |
| JEL: | J21 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:unp:wpaper:201313&r=iue |
| By: | Brown, Martin |
| Abstract: | This paper examines the impact of the recent banking crises in Europe and Central Asia on households'incomes and consumption patterns. The analysis is based on the 2010 wave of the Life in Transition Survey, which covers 12,704 households in eleven countries that experienced a banking crisis between 2008 and 2011. It finds that households in middle-income crisis countries are more than twice as likely to be hit by an income shock as households in high-income crisis countries. The labor market channel is the predominant source of income shocks, with wage reductions more widespread than job-losses. In reaction to income shocks, households reallocate spending from non-essential goods to staple foods. Reductions in staple-food consumption are, however, prevalent among low-income households. The paper examines potential crisis mitigators and finds that at the macro level a flexible monetary regime is associated with fewer cutbacks in household consumption. At the meso level, it finds no evidence that foreign bank ownership amplified the transmission of banking crises to households in Europe. With respect to micro-level mitigators, the analysis finds that diversified income sources as well as stocks of non-financial and financial assets help households to cushion income shocks. Access to informal and formal credit also mitigates the impact of income shocks on household consumption, with the former especially important in middle-income countries. |
| Keywords: | Access to Finance,Debt Markets,Emerging Markets,Economic Theory&Research,Banks&Banking Reform |
| Date: | 2013–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:6528&r=iue |