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on Informal and Underground Economics |
| By: | Friedrich Schneider |
| Abstract: | In this paper, first, six micro (4) and macro (2) estimation approaches are briefly described; they are the National Accounts Statistics discrepancy method and two new micro survey methods, a third one using a combination of company manager surveys and their knowledge to calibrate the size of the shadow economy in firms, and the consumption-income-gap of households method. The two macro methods are the MIMIC method and a structured hybrid method of the Currency demand and MIMIC models. Second, a detailed comparison of the results of four micro estimation methods with the macro MIMIC method are presented. One major result is that the estimated size of the shadow economy using the MIMIC method comes close to the size of the shadow economy of various types of recently developed micro survey methods. Third, using behavioral economics, some remarks are made about the reasons that individuals work in the shadow economy, and which estimation methods are best suited to apply this approach. |
| Keywords: | MIMIC estimation methods, macro and adjusted, micro survey method asking company managers, micro survey method using household data, using the consumption-income-gap, comparison of results of size of shadow economy of mostly OECD countries, shadow economy |
| JEL: | E26 E01 H26 H32 K42 P24 O17 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9434&r= |
| By: | Bibek Adhikari (Illinois State University); James Alm (Tulane University); Timothy F. Harris (Illinois State University) |
| Abstract: | How does third-party income reporting affect tax compliance? We use confidential administrative data from tax returns and information reports to estimate the impact of third-party income reporting on small business tax compliance. Since 2011, payment settlement entities (e.g., American Express) were required to report payment card transactions to both the firm and the Internal Revenue Service using Form 1099-K. This requirement made businesses’ receipts from payment cards—but not their cash receipts—third-party reported. Consequently, businesses located in higher payment card use areas experienced greater levels of third-party reporting than businesses located in lower credit card use areas. We construct an index of payment card use at the commuting zone level and we use this variation to identify the effect of Form 1099-K on reported receipts and deductions by small businesses. Overall, we find that the legislation modestly increased reported receipts without significantly increasing deductions. We also find substantial heterogeneity, with smaller firms, firms in business-to-consumer industries, and partnerships reporting a relatively large increase in receipts and a partially offsetting increase in deductions, implying a modest increase in tax compliance. |
| Keywords: | Tax enforcement, Information reporting, Tax evasion, Small businesses, Administrative data |
| JEL: | H25 H26 H32 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:2116&r= |
| By: | Matthias Kasper (University of Vienna); James Alm (Tulane University) |
| Abstract: | This study uses a laboratory experiment to investigate two behavioral explanations for taxpayers’ tendency to reduce their compliance after an audit (the “bomb crater effect”): the tendency to make up for losses incurred in the past (loss repair), and the incorrect assumption that experiencing an audit decreases the risk of a future audit (misperception of risk). Our findings suggest that audits do not have a strong effect in the aggregate. However, behavioral responses depend on the audit outcome. While taxpayers who were found to report all income correctly are substantially less compliant in their subsequent tax declaration, taxpayers who were found to evade their entire income show the opposite response. These results suggest that audits do not induce a general tendency for loss repair or a general misperception of the risk of a subsequent audit. Moreover, when comparing these changes in reporting behavior to the behavior of taxpayers who did not experience an audit, we find that audits do in fact not induce strong behavioral responses in general, and they do not induce a “bomb crater effect” in particular. Rather, our findings suggest that taxpayers reporting compliance in the laboratory is volatile, even absent any audits. We conclude that experimental studies should use control groups of unaudited taxpayers to identify the causal effect of audits on post-audit tax compliance. |
| Keywords: | Tax compliance; Bomb crater effect; Laboratory experiments |
| JEL: | C9 H26 H83 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:2118&r= |
| By: | Schneck, Stefan |
| Abstract: | Due to the pandemic-induced economic crisis, self-employed individuals are currently suering considerable income losses. The self-employed and the members in their households usually form an economic unit. As a consequence, the income cuts not only aect the self-employed themselves but also the rest of their household. We used the German Socio-Economic Panel (SOEP) to calculate how much income the selfemployed are able to sacrice to achieve a subjective barely sucient household income, which we interpret as the minimum level to maintain the standard of living. Our results suggest that full-time self-employed are typically the bread-earners in their households and that, as a consequence, even moderate income losses of the self-employed often lead to problems in maintaining the living standards of their households. Conditional on individual and household characteristics, the self-employed with employees are found to live in households that are less resilient to income losses. Furthermore, a negative correlation between falling short of the barely adequate household income and wellbeing was discovered. Self-employed in households with less than adequate incomes also reported higher concerns about social cohesion. These results have implications for policy - especially in light of the economic crisis induced by the pandemic. |
| Keywords: | entrepreneurial households,income,income cuts,self-employment |
| JEL: | L26 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifmwps:0321&r= |
| By: | Jakob Brounstein |
| Abstract: | This study leverages a unique data set on the universe of transactions exiting the Ecuadorian economy to estimate the tax-price elasticity of demand for tax-sheltering activities using offshore fiscal havens. I determine this elasticity quasi-experimentally by comparing the evolution in funds sent by individuals and corporations to tax havens for different purposes (e.g. dividend payments, bank account deposits) versus similar transactions with non-tax havens around changes to the Ecuadorian Impuesto a la Salida de Divisas , which effectuated an ad valorem tax on transfers to tax havens. |
| Keywords: | Tax evasion, Tax avoidance, Tax havens |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp-2021-187&r= |
| By: | Fauser, Hannes; Godar, Sarah |
| Abstract: | This paper estimates income tax underreporting for the case of Germany, by income category and along the income distribution. Comparing weighted samples of survey and tax data, we find patterns that are in line with the literature: Average income from self-employment and from rent and lease in the survey is higher than in the tax data, increasing in upper quintiles. Income underreporting to the tax authorities may be one of several possible explanations for these descriptive findings. We therefore expand our analysis with the Pissarides & Weber (1989) approach that has been applied to a range of countries and data sources before. We use the German Socioeconomic Panel and the Taxpayer Panel, estimating food, housing cost and donation regressions. Results indicate that self-employment is associated with higher housing cost but not with higher food expenditure in the SOEP. In the TPP we find more robust indication of underreporting as self-employment and business incomes are significantly associated with higher donations and even more so for the top-income decile. We use our results to derive tentative estimates of aggregate tax revenue losses due to underreporting of self-employment and other non-wage incomes. |
| Keywords: | tax evasion,income misreporting,personal income tax,self-employment,distributional effects |
| JEL: | D12 D31 H24 H26 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fubsbe:202117&r= |
| By: | Merima Ali; Odd-Helge Fjeldstad |
| Abstract: | The paper examines the legacy of pre-colonial centralization on tax compliance norms of citizens in contemporary Uganda. By combining geo-referenced anthropological data on pre-colonial ethnic homelands with survey data from several rounds of the Afrobarometer Survey, respondents from the historically centralized homelands are found to exhibit a higher willingness to pay tax compared to respondents from non-centralized areas. |
| Keywords: | Tax compliance, Uganda |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp-2021-188&r= |