The shadow economy in Colombia: size and effects on economic growth

Using the currency demand approach size and development of the Colombian shadow economy are estimated over the period from 1976 to 2002. In the 70s the size fluctuated around 20% of official GDP and rose to 50% in the 90s. The most important factors driving the shadow economy are unemployment and taxation. Analyzing the interaction between shadow and official economy, the shadow economy has a positive effect on the official one. Average growth rate of real per capita GDP is 1.11% between 1976 and 2002 and the shadow economy "explains" on average between 0.09 and 0.27 of this growth.Colombian shadow economy; currency demand method; taxation; unemployment; interaction between the shadow and official economy

Local Autonomy, Tax Morale and the Shadow Economy

Policymakers often propose strict enforcement strategies to fight the shadow economy and to increase tax morale. However, there is also a bottom-up approach such as, for example, decentralizing the political power to those who are close to the problems. Thus, this paper analyses the relationship between local autonomy and tax morale or the size of the shadow economy. We use data on tax morale at the individual level and macro data of the size of the shadow economy to systematically analyse the relevance of local autonomy and compliance in Switzerland, a country where the degree of federalism varies across different cantons. The findings suggest that there is a positive (negative) relationship between local autonomy and tax morale (size of the shadow economy).Tax Morale; Shadow Economy; Tax Compliance; Tax Evasion; Local Autonomy; Federalism; Institution

VAT tax gap prediction: a 2-steps Gradient Boosting approach

Tax evasion is the illegal evasion of taxes by individuals, corporations, and trusts. The revenue loss from tax avoidance can undermine the effectiveness and equity of the government policies. A standard measure of tax evasion is the tax gap, that can be estimated as the difference between the total amounts of tax theoretically collectable and the total amounts of tax actually collected in a given period. This paper presents an original contribution to bottom-up approach, based on results from fiscal audits, through the use of Machine Learning. The major disadvantage of bottom-up approaches is represented by selection bias when audited taxpayers are not randomly selected, as in the case of audits performed by the Italian Revenue Agency. Our proposal, based on a 2-steps Gradient Boosting model, produces a robust tax gap estimate and, embeds a solution to correct for the selection bias which do not require any assumptions on the underlying data distribution. The 2-steps Gradient Boosting approach is used to estimate the Italian Value-added tax (VAT) gap on individual firms on the basis of fiscal and administrative data income tax returns gathered from Tax Administration Data Base, for the fiscal year 2011. The proposed method significantly boost the performance in predicting with respect to the classical parametric approaches.Comment: 27 pages, 4 figures, 8 tables Presented at NTTS 2019 conference Under review at another peer-reviewed journa

Tax morale and public spending inefficiency

Tax evasion is a widespread phenomenon and encouraging tax compliance is an important and much debated policy issue. Many studies have shown that tax cheating has to be attributed to a considerable extent to the tax morale of taxpayers. The aim of the present paper is to shed light on the relationship between the taxpayer and the public sector. Specifically, we investigate whether public spending inefficiency shapes individual tax morale. Combining data from Italian municipalities’ balance sheets with individual data from a properly designed survey on tax morale, we find that the attitude towards paying taxes is better when resources are spent more efficiently. This does not appear to be due to some confounding factors at the municipality level or to spatial sorting of citizens. It is also robust to alternative measures of both inefficiency and tax morale.tax morale, public spending inefficiency

What is Hidden, in the Hidden Economy of Pakistan? Size, Causes, Issues and Implications

There is a worldwide contemporary debate about the role of the hidden economy in achieving the goal of sustained and inclusive economic growth and development, especially in the context of its spillover effects on the formal economy. For this purpose, policy makers and academicians have made concerted efforts to estimate the size of the hidden economy and to analyze its causes, issues and implications on key macroeconomic variables. However, there is a consensus among the policy makers that a better macroeconomic policy formulation and its true implementation are subject to the proper management of the associated issues of the hidden economy with suitable policy measures. In Pakistan, it is generally assumed that the hidden economy contributes about 30% to 50% to the overall GDP. The purpose of this paper is to estimate more precisely the size of the hidden economy with the determination of its potential causes and implications. Five statistical and structural modeling approaches namely; simple monetary approach, modified monetary approach using dynamic ordinary least square (DOLS), multiple-indicators multiple-causes (MIMIC) approach, electricity consumption approach and labor market survey based approach are used to estimate the size of the hidden economy and to analyze the characteristic nature of its growth over the period. The study also investigates the potential determinants of the hidden economy and various interrelated socio-economic issues in perspective of achieving national goal of inclusive growth and development. Finally, policy implications are provided consistent with pervading facts of the hidden economy in Pakistan especially in the context of the 18th Amendment and the 7th NFC Award.Hidden Economy, Size, Causes, Socio-Economic Implications, Inclusive Growth and Development, 18th Amendment and 7th NFC Award of Pakistan

An annotated bibliography of tax compliance and tax compliance costs

An annotated bibliography of tax compliance and tax compliance costs.tax; tax compliance; compliance costs; bibliography; tax evasion; tax avoidance; auditing; tax simplification

Do Bilateral Tax Treaties Promote Foreign Direct Investment?

We explore the impact of bilateral tax treaties on foreign direct investment using data from OECD countries over the period 1982-1992. We find that recent treaty formation does not promote new investment, contrary to the common expectation. For certain specifications we find that treaty formation may actually reduce investment as predicted by arguments suggesting treaties are intended to reduce tax evasion rather than promote foreign investment.

Are innovating firms victims or perpetrators ? tax evasion, bribe payments, and the role of external finance in developing countries

This paper investigates corruption and tax evasion and their firm-level determinants across 25,000 firms in 57 countries, a large fraction of which are small and medium enterprises in developing countries. Firms that pay more bribes also evade more taxes. Corruption acts as a tax oninnovation, particularly that of small and young firms. Innovating firms pay a larger percentage of their revenues in bribes to government officials than non-innovating firms. They do not, however, pay more protection money to private parties than other firms. Comparing the magnitudes of bribes and taxes evaded, innovating firms and firms that use formal finance are more likely to be net victims. The findings point to the challenges facing innovators in developing countries and the role of banks in curbing corruption and tax evasion.Access to Finance,Taxation&Subsidies,Public Sector Corruption&Anticorruption Measures,Debt Markets,Public Sector Economics

Globalization and Developing Countries - A Shrinking Tax Base?

This paper evaluates the impact of globalization on the tax bases of countries at varying stages of development. We see globalization as a process that induces countries to embrace greater trade and financial integration. This in turn should shift their tax revenue from "easy to collect" taxes (tariffs and seigniorage) towards "hard to collect" taxes (value added and income taxes). We find that trade and financial openness have a positive association with the "hard to collect" taxes, and a negative association with the "easy to collect" taxes.

Has Government Tax Policy in Greece Led to a Large Shadow Economy?

This capstone investigates the impact that tax policy has on the shadow economy in Greece. Greece has one of the largest shadow economies in the world and the largest in the European Union, with tax evasion being one of the main drivers. While previous research has provided measures of the shadow economy, none matches the shadow economy estimations with policies, laws, and agencies enacted by the government, specifically over the period in time of 1990-2012. This study contributes to the literature by connecting the policies implemented by the government with the size of the shadow economy in Greece, along with providing a new model based on prior versions of the currency-demand model. The study concludes by considering, a piece of cultural analysis to help explain why the people of Greece are so prone to evade taxes and enter the shadow economy. Research of Dr. Geert Hofstede’s work on cultural dimensions shows that Greeks have high levels of power-distance, collectivism, and uncertainty avoidance, all which can be used to explain why they are susceptible to keep evading taxes. Using an adaption of the currency demand model, the regression results show that the shadow economy increased with 1) an increase in the amount of people that are self-employed 2) decreases to the middle income tax rate 3) and with increases in the lowest income tax rate. These results suggest that the tax system needs a combination of stronger oversight and penalties because of the extremely high levels of uncertainty avoidance that Greeks possess. The results also show that revenue can be captured by raising the middle income tax rate, and that raising the tax rate on the lowest bracket will tend to force those people into the shadow economy. This study provides useful conclusions on the Greek shadow economy from both an economic perspective and a sociological perspectiv