Underground Economy,Evasion and Inequality

Economic theory is paying increasing attention to a non-observed economy (NOE) and its causes. Recently, a couple of works (Rosser et al., 2000 Rosser, J. B., Rosser, M. V. and Ahmed, E. 2000. Income inequality and the informal economy in transitions economies. Journal of Comparative Economics, 28(1): 156–171.  [Google Scholar], 2003 Rosser, J. B., Rosser, M. V. and Ahmed, E. 2003. Multiple unofficial economy equilibria and income distribution dynamics in systemic transition. Journal of Post Keynesian Economics, 25(3): 425–447. [Web of Science ®] , [Google Scholar]) have claimed that there is a positive relationship between income inequality and the size of NOE. This supposed relationship is not so clear and deserves in-depth analysis. There is a crucial aspect that has been completely avoided in these studies: income inequality is mainly measured using ‘regular’ incomes and this fact could lead to some bias. The existence of a certain size of NOE implies some income evasion that can affect the inequality indexes used in the study of the relationship between NOE and inequality. Including the regional share of NOE in a wage equation, I find that, in the specific case of the Italian private sector employees, the income evasion attached to NOE tends to reduce inequality measured by regular wages statistics.     

Size,trend, and policy implications of the underground economy

We study the underground economy within a dynamic and stochastic general equilibrium framework. Our model combines limited tax enforcement with an otherwise standard two-sector neoclassical stochastic growth model. The Bayesian estimation of the model based on Italian data provides evidence in favor of an important underground sector in Italy, with a size that has increased steadily over the whole sample period. We show that this pattern is due to a steady increase in taxation. Fiscal policy experiments suggest that a moderate tax cut, along with a stronger effort in the monitoring process, causes a sizeable reduction in the size of the underground economy and provides a positive stimulus for the regular economy. Both of these effects jointly increase total fiscal revenues.     

The learning path of the hidden economy: the tax burden and tax evasion in New Zealand

This paper considers the ‘learning curve’ relationship between the aggregate tax rate and the relative size of the hidden economy in New Zealand. Some simple non-linear models are estimated so that the effects of changes in the effective tax rate on the underground economy can be simulated. This study finds that about half of the hidden activity in New Zealand is a learned response to changing opportunities and constraints in fiscal policy, but this amount varies over the business cycle. Simulating a zero tax rate permits us to discover the ‘natural rate’ of underground and criminal activity. Some partial lessons are drawn for taxation policy in that country.     

Corporate labour share of income and the shadow economy: a cross-country analysis

This article addresses a link between the size of the shadow economy and the corporate labour share of income in the European Union. Fixed individual and time effects models suggest that there is a negative link between these two indicators. The coefficients are statistically significant if we control for other variables related to labour markets, such as unemployment rates or strictness of employment protection (regular contracts). Depending on the exact model specification, our estimates suggest that an increase in the shadow economy by 1% of GDP results in a 0.5–1% decline in the labour share of income in the corporate sector.     

The hidden economy in Spain – A monetary estimation, 1964–1998

The aim of this paper is to estimate the level and evolution of hidden income in Spain during the period 1964–1997. To this end, we employ the well-known monetary approach which supposes that the hidden economy is a response on the part of the economic agents to the tax burden, one which manifests itself in an excess of demand for currency. The estimation has been made on the basis of the ADL technique, an ECM and Johansen's cointegration approach. The period chosen was characterised by multiple institutional changes, an increase in the tax burden and wide-ranging financial liberalisation. This has obliged us to formulate a specific monetary model to estimate the hidden economy and is one of the original features of that model. First version received: February 1999/Final version received: March 2001     

Tax Evasion,Corruption and Tax Loopholes

This paper addresses tax loopholes that allow firms to exploit borderline cases between legal tax avoidance and illegal tax evasion. In general, tax loopholes are detrimental to a revenue‐maximizing government. This may change in the presence of corruption in the tax administration. Tax loopholes may serve as a separating mechanism that helps governments maximize revenues and curb corruption, which may explain why developing countries only gradually close loopholes in their tax codes.     

Tax enforcement and corporate profit shifting

We present empirical evidence suggesting that weak tax enforcement proxied by the extent of tax evasion in a country acts like a lower corporate tax rate in attracting profits of multinational corporations.     

Tax reform in Georgia and the size of the shadow economy

This study applies three different methods widely used in the literature to track changes in shadow economic activity in Georgia following a drastic tax reform in 2005. The first method is a currency demand approach based on macrolevel data. The second and third methods rely on micro level data from household surveys. Overall, we find evidence that the amount of income underreporting decreased in the years following the reform. The biggest change is observed for households headed by a farmer, followed by ‘other’ types of households where the head does not report any working status. Employed and self‐employed households appear very similar before the tax reform and show minimal adjustment in income reporting in the post‐reform period. Results, however, suggest that much of any difference may have come from increased enforcement efforts rather than rate changes.     

Tax system and informal economy: a cross-country analysis

This article analyses determinants of informal economy. By using qualitative aspects of tax systems, first, we create a ‘Smithian’ tax system index based on Adam Smith’s four maxims. Then, using this index and other control variables, we study determinants of informal economy. We use unique panel data set that is constructed by using various sources. After taking into account the endogeneity of tax burden and GDP per capita, our results show that ‘Smithian’ tax system index does not significantly affect informal economy. Our results suggest that rule of law, complexity of a tax system and tax burden affect informal economy negatively, while labour market regulations affect positively.     

The underground economy and its macroeconomic consequences

This study develops a dynamic general equilibrium model in which optimizing agents evade taxes by operating in the underground economy. The cost to firms of evading taxes is that they find themselves subject to credit rationing from banks. Our model simulations show that in the absence of budgetary flexibility to adjust expenditures, raising tax rates too high drives firms into the underground economy, thereby reducing the tax base. Aggregate investment in the economy is lowered because of credit rationing. Taxes that are too low eliminate the underground economy, but result in unsustainable budget and trade deficits. Thus, the optimal rate of taxation, from a macroeconomic point of view, may lead to some underground activity.     

Modelling the world economy at the 2050 horizon

Economic analysis is increasingly addressing long‐term issues (such as global warming) that require a dynamic baseline for the world economy. In this article, we develop a three‐factor (capital, energy, labour) macroeconometric (MaGE – Macroeconometrics of the Global Economy) model, and project growth for 147 countries to 2050. We improve on the literature by the following: (i) accounting for the energy constraint through dynamic modelling of energy productivity, (ii) modelling female participation rates consistent with education catch‐up, (iii) departing from the assumptions of either a closed economy or full capital mobility (by applying a Feldstein–Horioka type relationship between saving and investment rates), and (iv) offering a fully consistent treatment of the Balassa–Samuelson effect. These innovative features have a sizeable impact on projected GDP.     

结构性减税促进经济发展研究

通过阐释“结构性减税”内涵、出台背景及实践情况,分析其促进企业发展、增加居民收入、稳定物价、扩大出口等作用。分析结构性减税政策存在的影响地方财政收益、体制本身存在不足、对所得税制调节不大等问题,提出合理确定中央与地方财税分享比例、完善结构性减税政策体制、调整现行所得税制等政策建议。     

Unemployment and the shadow economy

Current research links the shadow economy (SE) and the unemployment rate either indirectly or by means of a preliminary estimate. This article establishes and empirically implements a methodology for estimating the size of the SE as a direct function of the tax and unemployment rates. This link is found to be extremely relevant in countries with high unemployment rates (such as Greece and Spain) and less relevant in countries with moderate unemployment rates (such as Germany and Italy). Unemployment’s contribution to the SE is shown to be significant, especially in the years following the economic downturn of 2008. The calculation of the variance and distribution of these estimates is another significant contribution. The common criticism that SE estimates are unreliable is addressed by calculating the variance and the distribution of the estimates, and the large size of the SE in Greece and Spain is once again confirmed.     

Tax noncompliance: The role of tax morale in smokers' behavior

Measuring and predicting compliance with tax obligations is an important but challenging task. Survey data from California smokers show that several forms of tax avoidance and evasion were common. The analysis shows that 43% of smokers avoided taxes by purchasing cigarettes from out-of-state sources in the past year, 15% admitted to evading taxes through cross-border purchases, and 26% reported purchasing likely or certainly untaxed cigarettes in the state in the past month. Attitudinal factors related to tax morale explain much more of the variance in compliance rates than demographic or law-and-economics factors. The implications for policy are discussed.     

How Does FDI Respond to the Size of Shadow Economy: An Empirical Analysis under a Gravity Model Setting

Using a panel study under a gravity model setting focusing on data from 1999 to 2007 for Organization for Economic Co-operation and Development countries, we show that the size of the shadow economy in the host economy relative to the investor economy can play a significant role in attracting Foreign Direct Investment (FDI) inflows. We further explore nonlinearities in how shadow economy differentials affect incoming FDI. Our results match the theoretical predictions which highlight that opportunities for tax evasion can have an impact on the activities of Multinational Corporations.     

The hard shadow of the Greek economy: new estimates of the size of the underground economy and its fiscal impact

This article presents new estimates of the Greek underground economy and explores the link between the underground economy and aggregate debt. We show that the Greek underground economy has been underestimated heavily and has been on a rising trend again since Greece adopted the Euro. We also present evidence that the size of the underground economy is positively related to the debt-to-GDP ratio, implying that fighting the underground economy is also conducive to financial and macroeconomic stability. Our results suggest that for our sample of 11 EMU member countries, the loss of the inflation tax as an economic policy instrument had drastic consequences. While the underground economy did not have a statistically significant impact on aggregate debt before the introduction of the Euro, it has pushed up the debt-to-GDP ratio in our sample since.     

The Big Bang: Tax Evasion After Automatic Exchange of Information Under FATCA and CRS

ABSTRACT

After decades of ineffective attempts to fight tax evasion, the Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS) recently implemented the first encompassing international exchange of tax-related information on an automatic basis. This is an important development because tax evasion contributes to rising socio-political inequality and political sovereignty losses. This article assesses the treaties’ impact on tax evasion by conducting a difference-in-difference analysis of cross-border asset data. The results show that the treaties are successful. Household assets in tax havens that are not hidden behind corporate identities are estimated to be 67 per cent lower than they would have been without automatic exchange of information. Furthermore, this reduction is not offset by an increase in treaty circumvention using identity concealment or asset shifting to non-compliant jurisdictions. FATCA and CRS thus implement the first effective international cooperation against tax evasion. The results imply that political globalisation is capable to mitigate the political sovereignty losses and rise of inequality caused by economic globalisation.     

Tax smoothing with immigration in an overlapping generations economy

Immigration policy in an overlapping generations economy is politically determined in response to government spending shocks, where the government finances its spending with proportional income taxes and is subject to a balanced budget. The young cohort is always the majority and dictates policy. The equilibrium Markovian strategy allows immigrants when the spending shock is above some threshold and this implies a particular form of tax smoothing.     

关于中国税收征管优化的几个基本问题的探讨--新制度经济学视角下的思考

税收征管影响着税收制度的有效运行。长期以来,对税收制度的研究忽视了税收征管因素,但税收征管现实存在并发挥巨大作用。本文从新制度经济学的视角对税收征管进行了理论上的分析,并结合中国的实践,提出了具体的税收征管优化路径选择。     

简析虚拟经济与实体经济的关系

进入21世纪后,随着经济全球化的不断深入,虚拟经济的规模日益扩大,虚拟经济与实体经济日益脱离,正确处理好虚拟经济与实体经济的关系成为现实经济快速、稳定、可持续发展的必要条件。通过运用单位根检验、协整检验、Granger因果关系检验,对我国的实体经济与虚拟经济关系进行了实证分析,结果表明,实体经济与虚拟经济的发展是不平衡的,不存在长期稳定的协整关系。