Tax Rates, Governance, and the Informal Economy in High‐income Countries

Kuehn, Zoë

doi:10.1111/ecin.12021

“…Aghion et al, 2010;Torgler and Schneider, 2007;Johnson et al, 1999;Lackó, 2006;Kuehn, 2010). 11 In line with this, hours in undeclared work tend to be higher in countries where there is a perception that few citizens try to be fair (Figure 12).…”

mentioning

confidence: 70%

Towards a Better Understanding of the Informal Economy

Andrews

¹

,

Sánchez

²

,

Johansson

³

2011

OECD Economics Department Working Papers

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JT03302658It is important to understand the nature and drivers of informality, as its social and economic consequences are wide-ranging. This paper critically reviews the current state of cross-country research on informality and discusses how existing data sources can be more effectively employed and extended to shed light on the link between public policies and informality. A number of interesting findings emerge. The informal economy is multi-faceted and a wide range of definitions and measures are required to capture its diverse activities. However, most existing -and widely used -cross-country estimates of informality suffer from large measurement problems, which reduce the reliability of existing empirical evidence on the extent and drivers of informality. Accordingly, future research on informality should be closely linked to obtaining better data, particularly at the household and firm levels.JEL classification codes: O17; H26; H11; J53; K0.

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“…Antunes and Cavalcanti (2007) use a general equilibrium model of occupational choice and informality to emphasize the role of regulation costs and financial contracts enforcement for cross-country differences in informality. In a similar spirit, Kuehn (2014) outlines the role of taxes and government quality for the level and dispersion of informal activity in OECD countries. Orsi, Raggi, and Turino (2014) studies the determinants of the size of the informal economy for the case of Italy.…”

Section: Related Literaturementioning

confidence: 99%

Envelope wages, hidden production and labor productivity

Nola¹,

Kocharkov²,

Vasilev³

2019

The B.E. Journal of Macroeconomics

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We evaluate the relative importance of aggregate labor productivity versus income taxes and social contributions for tax compliance in an economy with a large degree of informality. Empirical evidence points out that tax evasion in Europe happens through partially concealing wages and profits in formally registered enterprises. To this end, we build a model in which employer-employee pairs of heterogeneous productive capacities make joint decisions on the degree of tax evasion. The quantitative model is used to analyze the case of Bulgaria which has the largest informal economy in Europe and underwent a number of important tax reforms over the period 2000-2014, including the introduction of a flat income tax in 2008. The estimation strategy relies on matching the empirical series for the size of the informal economy and other aggregate outcomes for 2000-2014. Our counterfactual experiments show that the most important factor for the changing size of the informal economy is labor productivity, which accounts for more than 75% of the change. The variation in corporate income tax accounts for the rest. We find that the 2008 flat tax reform did not play any visible role in coping with informality.

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“…Antunes and Cavalcanti (2007) use a general equilibrium model of occupational choice and informality to emphasize the role of regulation costs and financial contracts enforcement for cross-country differences in informality. In a similar spirit, Kuehn (2014) outlines the role of taxes and government quality for the level and dispersion of informal activity in OECD countries. Orsi, Raggi, and Turino (2014) studies the determinants of the size of the informal economy for the case of Italy.…”

Section: Related Literaturementioning

confidence: 99%

Envelope Wages, Hidden Production and Labor Productivity

Nola

¹

,

Kocharkov

²

,

Vasilev

³

2017

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We evaluate the relative importance of aggregate labor productivity versus income taxes and social contributions for tax compliance in an economy with a large degree of informality. Empirical evidence points out that tax evasion in Europe happens through partially concealing wages and profits in formally registered enterprises. To this end, we build a model in which employer-employee pairs of heterogeneous productive capacities make joint decisions on the degree of tax evasion. The quantitative model is used to analyze the case of Bulgaria which has the largest informal economy in Europe and underwent a number of important tax reforms over the period 2000-2014, including the introduction of a flat income tax in 2008. The estimation strategy relies on matching the empirical series for the size of the informal economy and other aggregate outcomes for 2000-2014. Our counterfactual experiments show that the most important factor for the changing size of the informal economy is labor productivity, which accounts for more than 75% of the change. The variation in corporate income tax accounts for the rest. We find that the 2008 flat tax reform did not play any visible role in coping with informality.

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Tax Rates, Governance, and the Informal Economy in High‐income Countries

Cited by 26 publications

References 36 publications

Towards a Better Understanding of the Informal Economy

Towards a Better Understanding of the Informal Economy

Envelope wages, hidden production and labor productivity

Envelope Wages, Hidden Production and Labor Productivity

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