Tax compliance in post-transition: You and your friends matter, not the government

This paper contributes to the literature that seeks to assess the importance of various theories on tax evasion by individuals. The various theories can be distinguished in detail using a very fine-grained survey of Estonian residents that was collected in three rounds from 2018 to 2020. Principal component analysis shows that the survey replies are mutually consistent and form distinct clusters that match key theories on tax evasion. Logit estimations of tax compliance use the principal components and various control variables as covariates. Theories of individual rational choice do not gain support. Factors associated with personal norms and with social norms and customs are important for ..

Informal and Underground Economics

Are SMEs Avoiding Compliance Costs? Evidence from VAT Reforms in Japan

This study disentangles the motives behind enterprises' responses to size-dependent tax regulations by exploiting value-added tax (VAT) reforms in Japan. Tax threshold and tax rate in Japan have changed over the past three decades since the introduction of VAT. We build on the model of Harju et al. (2019) to incorporate various tax reforms and conducted bunching estimation. By using a novel panel of the Japanese Census of Manufacture covering the periods of VAT introduction and reforms, we find from the local estimates that the observed output response of enterprises is mainly caused by compliance costs rather than tax rates for small enterprises in Japan. The results suggest that the author..

Informal and Underground Economics

Quantitative Evaluation of Tax Compliance Cost in Japan (Japanese)

When considering the impact of taxation on business activities, it is important to consider not only the economic burden of taxation, but also the burden associated with tax procedures such as tax filing. However, the actual conditions of such burdens have not always been sufficiently investigated in Japan. Therefore, with the aim of providing reference material for the design of future tax systems, this paper summarizes the basic facts about the actual situation of the burden of tax procedures (hereinafter referred to as "tax compliance costs") on companies, by utilizing a questionnaire survey of companies. The main results are as follows. (1) Tax compliance costs tend to increase with the ..

Informal and Underground Economics

Flood Disasters and Health Among the Urban Poor

Billions of people live in urban poverty, with many forced to reside in disaster-prone areas. Research suggests that such disasters harm child nutrition and increase adult morbidity. However, little is known about impacts on mental health, particularly of people living in slums. In this paper we estimate the effects of flood disasters on the mental and physical health of poor adults and children in urban Indonesia. Our data come from the Indonesia Family Life Survey and new surveys of informal settlement residents. We find that urban poor populations experience increases in acute morbidities and depressive symptoms following floods, that the negative mental health effects last longer, and th..

Informal and Underground Economics

Pagos electrónicos y uso del efectivo en los comercios colombianos 2020

Con el fin de estudiar la dinámica reciente de los pagos electrónicos en Colombia, el Banco de la República llevó a cabo en el año 2020 una encuesta al sector comercio en donde se analizan diferentes aspectos de la aceptación y uso de distintos instrumentos de pago. La encuesta revela altos niveles de aceptación de instrumentos de pago electrónicos frente a estudios anteriores, alcanzando el 50% de los comercios encuestados. Se destaca en particular una superación de barreras en la informalidad pues, uno de cada dos comercios informales acepta hoy en día alguna forma de pago electrónico. Dado el contexto en el que se llevó a cabo la encuesta, se realizó un módulo de preguntas r..

Informal and Underground Economics

Education-occupation mismatch in the context of informality and development

Using household data from 15 countries in Latin America and Africa, this paper explores linkages between informality and education-occupation matching. The paper applies a unified methodology to measuring education-occupation mismatches and informality, consistently with the international labour and statistical standards in this area. The results suggest that in the majority of low- and middle-income developing countries with available data, workers in informal jobs have higher odds of being undereducated as compared to workers in formal jobs. Workers in formal jobs, in contrast, have higher chances of being overeducated. These results are consistent for dependent as well as for independent ..

Informal and Underground Economics

Media negativity bias and tax compliance: Experimental evidence

We study the impact of the media negativity bias on tax compliance. Through a framed laboratory experiment, we assess how the exposure to biased news about government action affects compliance in a repeated taxation game. Subjects treated with positive news are signicantly more compliant than the control group. Instead, the exposure to negative news does not prompt any significant reaction compared to the neutral condition, suggesting that participants may perceive the media negativity bias in the selection and tonality of news as the norm rather than the exception. Overall, our results suggest that biased news provision is a constant source of psychological priming and plays a vital role in..

Informal and Underground Economics

Financial Inclusion and Gender Inequality in sub-Saharan Africa

This study analyses the association between financial inclusion and gender inequality in sub-Saharan Africa. Our findings suggest that generally, most individuals in sub-Saharan Africa rely on informal sources of finance, such as savings at a savings club and borrowing from family and friends compared to formal financial sources. Moreover, women are more likely to turn to the informal sources compared to men which is a concern that needs to be addressed at policy level. Improving access to finance is at the center of improving gender equality and increasing the economic freedoms and opportunities that women have to contribute to their families and societies.

Informal and Underground Economics

Revisiting the informal aspects of the activity of countries, studied through Social Accounting and Socio-Demographic Matrices, with an application to Mozambique.

Approaches based on Social Accounting Matrices (SAMs) and Socio-Demographic Matrices (SDMs) will be presented as a way of capturing relevant networks of linkages and the corresponding multiplier effects, which can subsequently be used for modelling the activity of the countries to be studied. Emphasis will be placed on the activity of household unincorporated enterprises that will be identified with the informal sector. Based on methodological principles derived mainly from the works of Richard Stone, a proposal will be made to study the economic activity of Mozambique in 2016 in a matrix format, with special attention to the informal sector in general and, within this, forestry, and logging..

Informal and Underground Economics

Pecunia olet. Cash usage and the underground economy

This paper explores the role of cash usage in feeding the underground economy by using a unique dataset that combines, at province level, official estimates of Italian firms’ underreporting with data on cash transactions drawn from the aggregate anti-money laundering reports filed to the Italian Financial Intelligence Unit (UIF) by banks. In order to derive causal evidence, we apply two different econometric strategies: an instrumental variable approach and a difference-in-difference approach, which exploits the change in the maximum threshold for cash transactions introduced in 2016, thereby providing a measure of the effect of such policy on tax evasion. We find that an increase in ..

Informal and Underground Economics

Small Firms and the Pandemic: Evidence From Latin America

This paper studies the effects of the COVID-19 pandemic on small businesses between March and November 2020 using new survey data on 35,000 small businesses in eight Latin American countries. We document that the pandemic had large negative impacts on employment and beliefs regarding the future, which in turn predict meaningful economic outcomes in the medium-term. Despite the unprecedented amount of aid, policies had limited impact for small and informal firms. These ï¬ rms were less aware of programs, applied less, and received less assistance. This may have lasting consequences, as businesses that received aid reported better outcomes and expectations about the future.

Informal and Underground Economics

The Labor Market Effects of Part-Time Contributions to Social Security: Evidence from Colombia

In 2014, Colombia implemented a policy that added flexibilization to labor contracts for part-time workers that reduced the quasi-fixed costs of employing formal workers. We find that the reform increased the probability of entering the formal sector within the targeted population: low-wage, part-time workers. We use administrative employer-employee matched data and leverage variation across cities and industries in demand for part-time work before the reform. We find that, after the tax reform, the change in the total number of formal workers is 6 percentage points higher at firms that use the new contracts relative to their counterparts that choose not to hire low-wage, formal, part-time w..

Informal and Underground Economics

Using Sparse Modeling to Detect Accounting Fraud (Japanese)

In this paper, we implement anomaly detection on listed firms' accounting items. Using a type of sparse modeling, i.e., Graphical Lasso, we confirm that our accounting fraud detection has achieved a practically admissible level of detection capability. We also find that the method of sparse modeling contributes to detection capability.

Informal and Underground Economics

Determinants of tax morale: Cross-sectional evidence from Africa

The article provides a comparative analysis of the determinants of tax morale in South Africa and Zimbabwe, as neighbouring countries. In this quantitative research, data were collected using questionnaires from the 2010?2014 and 2017?2020 World Values Survey. For Zimbabwe, Wave 6 and Wave 7 had a sample size of 1 500 and 1 200, respectively. The study concludes that governments must understand tax morale and its determinants to boost voluntary compliance. Despite their lower standards of living, Zimbabweans have higher tax morale than South Africans. The determinants of tax morale differ between economic situations and countries. Corruption, prevalent in both countries, influences tax moral..

Informal and Underground Economics

An Examination of Taxpayers Attitude towards Income Tax: A Case of Bangladesh

" Objective - Taxation is the government's primary source of revenue, but it is unable to raise this revenue from the general public. The major goals of this article are to determine the taxpayers' attitudes toward income tax in Bangladesh, as well as the factors influencing taxpayers' behavioral intentions regarding tax evasion and avoidance. Both qualitative and quantitative research methods were used in this study. Methodology/Technique - The respondents' primary data was acquired by a standardized written questionnaire and a face-to-face viva. To complete the job, the study used purposeful random sampling, which resulted in the selection of 150 individuals from various occupations. After..

Informal and Underground Economics

Getting Off on the Wrong Foot: The Long-Term Effects of Missing a Large-Scale Amnesty for Immigrant Workers

We estimate the long-run effects of ineligibility for legalization on immigrants' formal employment and assimilation at work. Our empirical approach exploits the exogenous change in probability of obtaining legal status induced by a 2002 Italian amnesty program targeting irregular foreign workers. We show that immigrants unexposed to the amnesty have a 15% lower probability of being regularly employed a decade later than their counterparts. They also experience a deterioration in their working conditions in the long run, with increases in job immobility and segregation, and a decline in linguistic assimilation.

Informal and Underground Economics

What we pay in the shadow: Labor tax evasion, minimum wage hike and employment

The interactions between minimum wage policy and tax evasion remain largely unknown. We study firm-level employment effects of a large and biting minimum wage increase in Latvia conditional on labor tax compliance. The Latvian labor market is characterized by the prevalence of envelope wages, i.e. unreported cash-in-hand complements to the official wage. We apply machine learning to classify firms between compliant and tax-evading using a unique combination of administrative and survey data. We then show that firms engaged in labor tax evasion are insensitive to the minimum wage shock. Our results suggest that these firms use wage underreporting as an adjustment margin, converting (part of) ..

Informal and Underground Economics

Entrepreneurship and the Shadow (Informal) Economy

In this paper, we investigate the empirical relationship between entrepreneurship and the shadow economy size. To this end, we use cross-country data and most-frequently-used measure of the entrepreneurial activity, i.e., Global Entrepreneurship Index (GEI), as well as its subindices, and calculate correlations of these indices with the size of the informal sector and its major determinants. Our analysis indicates that there are significant correlations between the variables involved.

Informal and Underground Economics

Aspectos macroeconómicos de la medición de la informalidad

El tamaño del sector informal es posiblemente una de las variables económicas más esquivas en su medición y polémicas en su interpretación y concepción. Si a lo anterior le sumamos los incentivos que poseen las unidades económicas de ocultar información y eludir la normatividad, nos encontramos con un hecho irrefutable: solo podríamos aproximarnos con cierto grado de precisión a una variable que es bastante difusa y que, en algunos casos, podría ser tratada a lo sumo como una variable latente. Este trabajo hace una revisión de las principales estrategias para aproximarse a la medición del sector informal, clasificando estas medidas en dos tipos: directas e indirectas. En el cas..

Informal and Underground Economics

Informality, innovation, and knowledge co-creation: characterising collaborative creativity and adaptation in rural development

This article characterises informal knowledge creation and co-creation between development and pastoralist actors, drawing on qualitative data gathered during an in-depth case study in Northern Kenya. Using thematic analysis, this article identifies three intersecting narratives: knowledge and exchange, barriers and drivers, and risk and uncertainty. These concepts are interpreted using wider literature on knowledge dynamics and co-creation to evaluate the suitability of existing analytical frameworks for further research on pastoralist development. The study results highlight the value of cross-cultural informal knowledge co-creation for pastoralist development, and the need for more robust..

Informal and Underground Economics

COVID-19 and the Informality-driven Recovery: The Case of Colombia's Labor Market

This paper documents the impact of the COVID-19 pandemic and associated lockdowns on the Colombian labor market using household micro-data. About a quarter of employment was temporarily disrupted at the height of the first pandemic-induced lockdown in 2020. Women, the young, and the less educated were the most affected groups. Since then, a remarkable recovery, led by a rebound in informal employment, has taken place. By adjusting both employment levels and hours faster, the informal sector acted as an important margin of adjustment, particularly in those industries most affected by the first lockdown. The informal sector also appears to have played a role in decreasing the sensitivity of ag..

Informal and Underground Economics

Does voting on tax fund destination imply a direct democracy effect?

Does giving taxpayers a voice over the destination of tax revenues lead to more honest income declarations? Previous experiments have shown that giving participants the opportunity to select the organization that receives their tax funds tends to increase tax compliance. The aim of this paper is to assess whether this increase in compliance is induced by the sole fact of giving subjects a choice — a "direct democracy effect". To that aim, we ask participants to a tax evasion game to choose, in a collective or individual choice setting, between two very similar organizations which provide the same social (ecological) benefits. We elicit compliance for both organizations before the choice is..

Informal and Underground Economics

Growing Apart or Moving Together? Synchronization of Informal and Formal Economy Cycles

We study the degree of synchronization between formal- and informal-economy business cycles. Using a comprehensive database of informal activity that covers a wide range of informality measures from almost 160 countries over the 1990-2018 period, we report two major results. First, fluctuations in informal-sector output are strongly positively correlated with those in formal-sector output. In contrast, fluctuations in informal employment are largely uncorrelated with those in formal-sector output. Second, movements in the formal economy tend to spillover to the informal economy. Using a novel set of instrumental variables, we show that fluctuations in formal-sector output “cause” movemen..

Informal and Underground Economics

Understanding Informality

This paper introduces a comprehensive database of informal economic activity. The database focuses on measures that have strong cross-country and over time coverage: it includes both model-based and survey-based measures of informality and covers more than 160 economies for the period 1990-2018. The paper illustrates two applications of the database. First, it distills stylized facts of informal activity, including its declining trend and pervasiveness in emerging market and developing economies (EMDEs). Second, it documents the cyclical features of the informal economy. Overall, informal economy recessions (recoveries) do not differ significantly from those of formal economy. Like formal-ec..

Informal and Underground Economics

Fringe Banking and Financialisation: Pawnbroking in pre-famine and famine Ireland

Pawnbroking, one of the oldest and most accessible forms of credit, was a common feature of life in pre-famine and famine Ireland. This paper studies the role of pawnbroking in the Irish financial system during this important period, applying insights from modern studies on fringe banking to analyse pawnbroking in Ireland. In the period under study, a formal tiered financial system existed; regulated joint stock banks offered services to industry and the better off, while fringe banks provided financial services largely, but not exclusively, to unbanked groups. The main findings are that pawnbrokers provided a steady source of credit throughout the island of Ireland and that this credit stre..

Informal and Underground Economics

Epidemics and Informality in Developing Countries

Developing countries are facing the Covid-19 epidemic with particular challenges, such as their economic and labor force composition. In this research I will extend the so-called SIR-macro model with demand and supply effects to study how the size of the informal sector impact the ability of these countries to respond to the epidemic. Lockdown policies are useful to control the health crisis but these are less effective in informal markets. As a result, infection and death rates will not decrease as expected, and since informal activities are not counted in the calculation of the GDP, this would exacerbate the size of the recession. Finally, in order to generate similar results to an economy..

Informal and Underground Economics

Breadth and sufficiency of Cash Transfer Responses in Ten Latin American Countries during the First 12 Months of the COVID-19 Pandemic

Given the devastating health and economic effects of the COVID-19 pandemic in Latin America, social protection responses have been crucial for safeguarding access to basic needs among vulnerable households. Yet policy design has varied widely across countries. In this working paper, we develop comparative measures to assess the breadth and sufficiency of the cash transfer responses of ten Latin American countries (Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Ecuador, Mexico, Peru and Uruguay) during the first twelve months of the pandemic, from April 2020 to March 2021. We assess it for two particularly vulnerable groups: children in existing cash transfer programs, and informal ..

Informal and Underground Economics

Formal insurance and altruism networks

We study how altruism networks affect the adoption of formal insurance. Agents have private CARA utilities and are embedded in a network of altruistic relationships. Incomes are subject to both a common shock and a large idiosyncratic shock. Agents can adopt formal insurance to cover the common shock. We show that ex-post altruistic transfers induce interdependence in ex-ante adoption decisions. We characterize the Nash equilibria of the insurance adoption game. We show that adoption decisions are substitutes and that the number of adopters is unique in equilibrium. The demand for formal insurance is lower with altruism than without at low prices, but higher at high prices. Remarkably, indiv..

Informal and Underground Economics

Determinants, Wage Inequality, and Occupational Risk Exposure of Informal Workers: A Comprehensive Analysis With the Case Study of Thailand

This study provides a comprehensive analysis of informal workers in Thailand by utilising the 2006-2019 Thai Informal Employment Survey data. The estimated results reveal the adverse effects of informal employment on workers’ economic and social conditions as follows: 1) the wages gap working against informal employment, confirming that informal employment is not a choice but rather an unavoidable constraint (Oaxaca-Blinder decomposition), 2) a negative relationship between informal employment and wages, particularly among workers in the lowest tail of the wage distribution (quantile regression), and 3) a positive association between informal employment and occupational risks, particu..

Informal and Underground Economics

Finanzas territoriales y contrabando de cigarrillos en Colombia : una relación compleja.

Finanzas territoriales y contrabando de cigarrillos en Colombia: una relación compleja tiene como base un estudio realizado por Fedesarrollo para British American Tobacco (BAT),sede Colombia, y se centra en discutir, validar y refutar argumentos y afirmaciones que suelen estar en el radar cuando se habla de los impuestos saludables y específicamente de los aplicados a los cigarrillos y similares. Para el caso colombiano se analiza con particular énfasis la relación de la tributación con el contrabando. El primero analiza el comportamiento de las finanzas departamentales, especialmente después de la entrada en vigor de la Ley 1819 del 2016, que contempló un fuerte incremento de los imp..

Informal and Underground Economics