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on Informal and Underground Economics |
| By: | Joel Slemrod |
| Abstract: | This paper reviews recent economic research in tax compliance and enforcement. After briefly laying out the economics of tax evasion, it focuses on recent empirical contributions. It first discusses what methodologies and data have facilitated these contributions, and then presents critical summaries of what has been learned. It discusses a promising new development, the analysis of randomized controlled trials mostly delivered via letters from the tax authority, and then reviews recent research using various methods about the impact of the principal enforcement tax policy instruments: audits, information reporting, and remittance regimes. I also explore several understudied issues worthy of more research attention. The paper closes by outlining a normative framework based on the behavioral response elasticities now being credibly estimated that allows one to assess whether a given enforcement intervention is worth doing. |
| JEL: | H20 H26 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24799&r=iue |
| By: | Filomena Garcia; Andrea Vezzulli; Rafael Marques; Luca David Opromolla |
| Abstract: | The administration of tax policy has shifted its focus from enforcement to complementary instruments aimed at creating a social norm of tax compliance. In this paper we provide an analysis of the effects of the dissemination of information regarding the past degree of tax evasion at the social level on the current individual tax compliance behavior. We build an experiment where, for given levels of audit probabilities, fines and tax rates, subjects have to declare their income after receiving either a communication of the official average tax evasion rate or a private message from a group of randomly matched peers about their tax behavior. We use the experimental data to estimate a dynamic econometric model of tax evasion. The econometric model extends the Allingham–Sandmo–Yitzhaki tax evasion model to include self-consistency and endogenous social interactions among taxpayers. We find four main results. First, tax compliance is very persistent. Second, the higher the official past tax evasion rate the higher the degree of persistence: evaders are more likely to evade again, and compliant individuals are more likely to comply again. Third, when all peers communicate to have evaded (complied) in the past, both evaders and compliant individuals are more likely to evade (comply). Fourth, while both treatments, and especially the unofficial information treatment, are associated, in the context of our experiment, with a significantly larger growth in evasion intensity, the aggregate effect depends on the characteristics of the population. In countries with inherently low levels of tax evasion, official information can have beneficial effects by consolidating the behavior of compliant individuals. However, in countries with inherently high levels of tax evasion, official information can have detrimental effects by intensifying the behavior of evaders. In both cases, the impact of official information is magnified in the presence of strong peer effects. |
| JEL: | C24 C92 D63 H26 Z13 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w201809&r=iue |
| By: | Nigar Hashimzade (Durham University); Gareth Myles (University of Adelaide and Institute for Fiscal Studies); Hana Yousefi (KPMG) |
| Abstract: | Empirical evidence shows that both gender and household roles are significant explanatory variable for tax evasion. Why these variables matter cannot be explained by current evasion models which consider only individual choice. In this paper we study the evasion decision in a non-cooperative model of household decision making. Two members of a household choose how much to contribute to a household public good, how much self-employment income to evade, and how much income to shift between partners. We are interested in how different evasion possibilities interact with the contribution decisions to the household public good and the role of income transfers within the household. We show the household evasion decision differs from the individual decision because it affects the outcome of the household contribution game. When household members are taxed as individuals neutrality applies when choices are not constrained. If the evasion level of one household member is constrained then an income transfer can generate a Pareto improvement. When the household members are jointly taxed there is a couple constraint on strategies and corner solutions can emerge. |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:adl:wpaper:2018-06&r=iue |
| By: | Alexander D Klemm; Li Liu; Victor Mylonas; Philippe Wingender |
| Abstract: | This paper assesses a possible explanation for the global downward trend in top personal income tax rates over the last decades: globalization and the related tax evasion and avoidance opportunities could have raised elasticities of taxable income, which would imply lower optimal tax rates. The paper estimates elasticities of taxable income for top income earners using a large sample of economies and years with a common method, allowing an analysis of trends in such elasticities. The paper finds that elasticities do not appear to exhibit any clear pattern over the years. The downward trend in tax rates must have other possible explanations, which are briefly discussed. |
| Date: | 2018–06–13 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:18/132&r=iue |
| By: | Amodio, Francesco; De Giorgi, Giacomo; Rahman, Aminur |
| Abstract: | Firms in developing countries often avoid paying taxes by making informal payments to tax officials. These bribes may raise the cost of operating a business, and the price charged to consumers. To decrease these costs, we designed a feedback incentive scheme for business tax inspectors that rewards them according to the anonymous evaluation submitted by inspected firms. We show theoretically that feedback incentives decrease the equilibrium bribe amount, but make firms with more inelastic demand more attractive for inspectors. A tilted scheme that attaches higher weights to the evaluation of smaller firms limits the scope for targeting and decreases the bribe amount to a lesser extent. We evaluate both schemes in a field experiment in the Kyrgyz Republic and find evidence that is consistent with the model predictions. By decreasing bribes, our intervention reduces the average cost for firms and the price they charge to consumers. Since fewer firms substitute bribes for taxes, tax revenues increase. Our study highlights the role of firm heterogeneity and market structure in shaping the relationship between firms and tax inspectors, and provides clear evidence of pass-through of bribes to consumers. |
| Keywords: | business tax; demand elasticity; incentives; market structure |
| JEL: | D22 D40 H26 H71 O12 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13055&r=iue |
| By: | Fabien Candau (CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour); Jacques Le Cacheux (OFCE - Observatoire Français des Conjonctures économiques - Institut d'Études Politiques [IEP] - Paris - Fondation Nationale des Sciences Politiques [FNSP]) |
| Abstract: | This article proposes an original review of the literature on tax competition, providing new evidence on tax competition concerning different types of capital (intangibles, industrial building, etc). We also present fiscal optimization of Multi-National Firms (MNFs) and document some case studies regarding the foregone tax revenue due to evasion. Amounts saved by firms are comparable to the contributions to the EU budget by countries like the UK, Ireland, the Netherlands or Luxembourg. We estimate the revenue losses for the national governments of EU15 due to corporate tax avoidance through profit shifting under three scenarios considering different levels of `CIT efficiency' to raise revenue for the year 2015. The 'intermediate' scenario predicts that the revenue losses for the EU governments due to corporate tax avoidance amount to approximately 98 billion euros. After this description of the failure of the current system of taxation, the defense of corporate income tax at the European level as a genuine own resource for the EU budget, this article analyzes alternative schemes such as the Common Consolidated Corporate Tax Base (CCCTB). |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01847937&r=iue |
| By: | Lengwiler, Yvan (University of Basel); Saljihaj, Albana (University of Basel) |
| Abstract: | The U.S. Tax Program for Swiss Banks is a very significant part of the recent history of the Swiss financial industry. It has accelerated the transformation of the Swiss banking industry from a system that relied on bank secrecy to a much more compliant one. It was also rather costly for the banks involved. This short paper tries to identify the determinants of the individual penalties that were levied by the DoJ. |
| Keywords: | tax evasion; bank secrecy |
| JEL: | G21 H26 |
| Date: | 2018–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:bsl:wpaper:2018/20&r=iue |
| By: | Kumacheva, Suriya Sh.; Gubar, Elena A.; Zhitkova, Ekaterina M.; Kurnosykh, Zlata; Skovorodina, Tatiana |
| Abstract: | Collected papers presented on the Tenth International Conference Game Theory and Management / Editors Leon A. Petrosyan, Nikolay A. Zenkevich. Ó SPb.: Saint Petersburg State University, 2017. Ó 404 p. |
| Keywords: | tax audit, tax evasion, total tax revenue, information spreading, evolutionary game on networks, |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:sps:cpaper:10455&r=iue |
| By: | Mandal, Biswajit; Roy, Sangita |
| Abstract: | Informal sector comprising of unrecorded, unregistered activities in developing economies of the world is a common feature at present scenario. Existence of such sectors in an economy clearly reflects the weakness of government to provide employment opportunities for all. Such informal activities are again facilitated through the extortionists who are bribed by the informal producers. Under such an economic structure the paper investigates into the effect of inflow of educational capital on endogenously determined factor prices and output of formal and informal sectors of an economy.Though there is no change in the factor earnings, an inflow of educational capital gives a boost to the output of skilled sector irrespective of any factor intensity assumption. Output of formal sector also expands depending on the factor intensity assumption but quite interestingly no change is seen in the output of informal sector. Inflow of educational capital leads to dampening of intermediation activities in an economy which is a positive result and this can help the policy makers to choose the right path of development. |
| Keywords: | Educational capital, Informal sector, Corruption |
| JEL: | D50 D73 E26 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:87461&r=iue |
| By: | Ghosh, Sujata; Mandal, Biswajit; Gupta, Kausik |
| Abstract: | In this paper, we construct a three sector general equilibrium model of a small open economy with informal sector. The paper examines the impact of less protectionist policy on the output levels, factor prices, and the level of urban employment. Here, it has been shown that the urban unemployment rate has been lowered with the contraction of import competing manufacturing sector consequent upon a reduction in tariff. The informal intermediate sector has contracted as well. It is further shown here that there is a possibility of expansion of exportable agricultural sector with increased wage rate. The paper is then extended to introduce foreign capital inflow and examine on the output effects and the level of unemployment. Interestingly, in the extended model urban unemployment is aggravated due to an inflow of foreign capital. |
| Keywords: | Informal Sector, Tariff Liberalization, Foreign Capital Inflow, General Equilibrium, |
| JEL: | D58 D60 F11 F13 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:87463&r=iue |
| By: | Mandal, Biswajit; Roy, Sangita |
| Abstract: | This paper proposes a simple theoretical model of a small open economy comprising of four sectors including formal and informal ones. One sector produces skilled intermediate input for the importable production. Though other two sectors use labour and capital (land), labour is segregated as skilled or unskilled. Following traditional specification we also assumed that the skilled labours are employed in the formal sector and unskilled labours are employed in the informal sector. One of the distinguishing features of the present paper is the use of skilled intermediate input in import competing sector. So, in a sense import competing sector uses both skilled and unskilled labour. In such backdrop we tried to study the impact of trade liberalization on absolute and relative wage(s). It has been found that irrespective of factor intensity ranking both types of workers lose owing to tariff cut whereas under reasonable condition wage disparity between skilled and unskilled workers is reduced. These results seem to be quite sensible though the structure is slightly different from the conventional set up. |
| Keywords: | informality; skilled- unskilled labour; wage gap |
| JEL: | D5 D50 J31 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:87459&r=iue |
| By: | Bertranou, Fabio.; Jiménez, Mónica.; Jiménez, Maribel. |
| Abstract: | La construcción de trayectorias virtuosas hacia la formalización y el trabajo decente de los jóvenes constituye uno de los desafíos de política pública más relevantes para garantizar una inclusión laboral sostenible durante todo el ciclo de vida de trabajo. Estas trayectorias dependen de factores tan variados como el desempeño escolar, la composición familiar, el género y la conciliación que la mayoría de los jóvenes deben lograr entre las tareas de cuidado, la formación, el trabajo y otras esferas de desarrollo personal. Este documento realiza una revisión de los indicadores clave del empleo juvenil en Argentina,y destaca especialmente las barreras que enfrentan los adolescentes y jóvenes en su tránsito hacia la formalización laboral, el papel que juegan las instituciones laborales y las políticas de protección social,como así también los desafíos que surgen a partir de los requerimientos de nuevas habilidades digitales y socioemocionales, frente a la evolución de las tecnologías y las cambiantes formas de organización dela producción y el trabajo, en el contexto de los Objetivos de Desarrollo Sostenible de la Agenda 2030. |
| Abstract: | The construction of virtuous trajectories towards formalization and decent work for young people constitutes one of the most relevant public policy challenges to guarantee sustainable labour inclusion throughout the work life- cycle. These pathways depend on factors as varied as educational attainment,family composition, gender and work-family-education reconciliation that most youths must achieve. This document reviews the key indicators of youth employment in Argentina, and particularly highlights the barriers faced by adolescents and young people in their transition towards the formalization of employment,the role played by labour institutions and social protection policies, as well as the challenges that arise from the requirements of new digital and socio-emotional skills, before the evolution of technologies and the changing forms of organization of production and work, in the context of the Sustainable Development Goals of the 2030 Agenda. |
| Keywords: | youth employment, precarious employment, dropout, social protection, Argentina |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ilo:ilowps:994995693402676&r=iue |