We investigate the characteristics of the owners of small businesses that participate in the informal sector of an emerging economy and their perception of the risk of detection by tax authorities while doing so. Data are gathered from a survey covering 1027 small businesses in Trinidad and Tobago. Results suggest that small-business owners are motivated to participate in the informal sector when they believe that the risk of detection by the tax authorities is low and that government regulations are burdensome, but there is no evidence that the tax rate itself is an issue. Their perception of the risk of detection by the tax authority is determined largely by the time they spend and the income they earn in the formal sector.
The purpose of this paper is to highlight the superiority of the Kalman filter over Ordinary Least Squares for estimating the unknown coefficients of the classical linear regression model. Both methods are analyzed with respect to their optimality properties and their usefulness in dealing with multicollinearity. Theoretical results axe applied to two economic models.
Innovation has long been associated with productivity growth in that, hypothetically, it results in more effective use of a firm's resources and improved productivity. there is ample empirical evidence that firms that engage in innovation-type activities-such as spending on research and development (r&D) and obtaining intellectual property rights through patents and copyrights-are more technologically advanced and have higher labor productivity, enabling them to compete better internationally (Schumpeter 1939; Griliches 1986; Freeman 1994; Griffith et al. 2006; Mairesse and Mohnen 2010). Furthermore, there is evidence that investment in innovation-type activities results in sustainable long-run growth and development (hall and Jones 1999; OeCD 2009; rouvinen 2002). In view of the potential benefits, policymakers in the Caribbean have acknowledged the role that innovation may play in increasing productivity, as well as economic growth and development. For instance, in 1988,
Using the case study of Trinidad and Tobago, we investigate the socio-economic, demographic, and attitudinal characteristics of households that participate in the informal sector of an emerging economy and their perception of the risk of detection by tax authorities while doing so. Data are gathered from a cross-sectional field survey covering 570 households. Results using multinomial logit and ordered probit models suggest that households are motivated to participate in the informal sector when members spend little time in formal sector activity, believe that taxes are too high and their incomes are too low, have dependents to support and believe that the resulting tax evasion will go undetected. Their perception of the risk of detection by the tax authority is determined largely by the income they earn in the formal sector and the extent of government bureaucracy prevailing there.
JEL CLASSIFICATION NUMBERS: C25, C51, E26.
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