Compliance costs vs. tax incentives: Why do entrepreneurs respond to size-based regulations?

Harju, Jarkko; Matikka, Tuomas; Rauhanen, Timo

doi:10.1016/j.jpubeco.2019.02.003

Cited by 45 publications

(24 citation statements)

References 18 publications

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“…For example, Djankov et al [2002] and Klapper et al [2006] show that entry regulations are likely to reduce firm entry. More recently, Harju et al [2019], Tazhitdinova [2016] and Aghion et al [2017] estimate the effect of the hassle costs of complying with the tax code on entrepreneurs and incorporation. We focus on a different type of regulation -the social insurance mandate -and its effect on the intensive entrepreneurial margin.…”

Section: Introductionmentioning

confidence: 99%

Does Mandating Social Insurance Affect Entrepreneurial Activity?

2019

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This paper estimates the effect of relaxing the social insurance mandate on entrepreneurial activity. We use a unique discontinuity in Finland that allows certain entrepreneurs not to pay social insurance contributions on their income. Using rich administrative data, we find that relaxing the social insurance mandate leads entrepreneurs to significantly reduce their contributions, which they channel instead into their firms. While young firms use this windfall to increase business activity, older ones use it to improve their net lending position by purchasing stocks. Our results imply that the social insurance mandate is binding and its efficiency cost is heterogeneous.

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Section: Introductionmentioning

confidence: 99%

Does Mandating Social Insurance Affect Entrepreneurial Activity?

2019

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“…The first explanation is related to taxpayer confusion, complexity in dealing with the tax administration, and practical difficulties related particularly to EBMs. These issues, which can broadly be labelled as compliance costs, are particularly severe for small taxpayers, as documented elsewhere in the literature (Ebrill et al 2001;Coolidge 2012;Barbone et al 2012;Bird and Gendron 2007;World Bank 2016;Harju et al 2019;Gerard et al 2018;Atnafu et al 2019;Slemrod and Velayudhan 2020). In section 5.1 we document what they mean in the practice of small businesses, including difficulties in dealing with technology (EBMs) and claiming VAT refunds.…”

Section: Introductionmentioning

confidence: 79%

“…All this represents an administrative burden for firms -or compliance cost. These requirements may put taxpayers off registering for the VAT altogether (Barbone et al 2012;Harju et al 2019;Slemrod and Velayudhan 2020). For this reason, VAT systems usually include a turnover threshold under which firms are not required to register for the VAT (Keen and Mintz 2004).…”

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confidence: 99%

The VAT in Practice: Equity, Enforcement and Complexity

Mascagni¹,

Dom²,

Santoro³

2021

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The value added tax (VAT) is supposed to be a tax on consumption that achieves greater economic efficiency than alternative indirect taxes. It is also meant to facilitate enforcement through the ‘self-enforcing mechanism’ – based on opposed incentives for buyers and sellers, and because of the paper trail it creates. Being a rather sophisticated tax, however, the VAT is complex to administer and costly to comply with, especially in lower-income countries. This paper takes a closer look at how the VAT system functions in practice in Rwanda. Using a mixed-methods approach, which combines qualitative information from focus group discussions with the analysis of administrative and survey data, we document and explain a number of surprising inconsistencies in the filing behaviour of VAT-remitting firms, which lead to suboptimal usage of electronic billing machines, as well as failure to claim legitimate VAT credits. The consequence of these inconsistencies is twofold. It makes it difficult for the Rwanda Revenue Authority to exploit its VAT data to the fullest, and leads to firms, particularly smaller ones, bearing a higher VAT burden than larger ones. There are several explanations for these inconsistencies. They appear to lie in a combination of taxpayer confusion, fear of audit, and constraints in administrative capacity.

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“…Other recent research focuses more on estimation of compliance costs connected to selected industry on farming [40,41], on transportation [42], to methodology used issues [43][44][45][46] or to single issues connected to environmental regulation (selected law in Prause and Olaniyi [18]; influence of environmental regulation in Taheri and Stevenson [47] and Lade and Rudik [48]; effect of company characteristics on the effectiveness of environmental regulation in Wang, Yin and Chen [49]; critical factors for environmental regulation change management in Ribeiro and Kruglianskas [50]; and how to secure high levels of business compliance with environmental laws in Kellett [51]).…”

Section: Review Of the Literature On Measuring Compliance Costsmentioning

confidence: 99%

Identification of the Factors That Affect the Environmental Administrative Burden for Businesses

2020

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Environmental regulations bring social benefits and contribute to lessening environmental damage. At the same time, due to the rapidly changing and complex environmental legislation, businesses incur costs, including administrative burdens. The article presents quantitative evidence on the factors that affect the compliance costs of environmental regulations. For this purpose, we used a binary model of logistic regression with the following predictors: enterprise characteristics, the relevance of environmental regulations for business operations, and the impact of environmental stimulus measures on compliance costs. The results of the study suggest that medium-sized enterprises are less likely to experience the environmental administrative burden than small enterprises. However, no difference has been found between large and small enterprises. Further, we show that environmental consents are an important determinant of the environmental administrative burden and that financial environmental measures can have a positive impact thereon.

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Compliance costs vs. tax incentives: Why do entrepreneurs respond to size-based regulations?

Cited by 45 publications

References 18 publications

Does Mandating Social Insurance Affect Entrepreneurial Activity?

Does Mandating Social Insurance Affect Entrepreneurial Activity?

The VAT in Practice: Equity, Enforcement and Complexity

Identification of the Factors That Affect the Environmental Administrative Burden for Businesses

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