Institutions, Corruption and Tax Evasion in the Unofficial Economy

In this paper we propose a model of how institutional benefits, taxation and government regulations affect the productive activity of private enterprises. We consider an environment in which public officials enforcing tax and regulatory obligations are potentially corruptible, and markets for corruption may therefore arise that give firms the option of producing unofficially and evading taxes and regulations. By contrast to some previous studies that view corruption and bribery as forces driving firms out of official production into the underground economy, our model features the idea that the `grabbing hands' of corrupt bureaucrats may alternatively serve as `helping hands' allowing firms to exploit profitable opportunities in the unofficial sector. And contrary to a traditional view maintaining that high tax rates are intrinsically a major cause of large shadow economies, our model implies that incentives to evade taxation and produce underground depend on statutory tax rates relative to firm-specific thresholds of tax toleration. Tax toleration is determined, among other things, by firm-specific institutional benefits available to official producers and the costs of corruption required to produce unofficially. Some core predictions of the model concerning the determinants of tax toleration and the relative size of unofficial activity and tax evasion receive broad support from empirical analyses based on firm-level data from the World Business Environment Surveys sponsored by the World Bank.institutions corruption tax evasion unofficial economy underground economy

Tax Toleration and Tax Compliance: How Government Affects the Propensity of Firms to Enter the Unofficial Economy

We propose a model of how government-supplied institutional benefits and the taxation and regulation of producers affect the propensity of private firms to enter the unofficial economy and evade taxation. Our analysis implies that the incentive of firms to produce underground depends on tax rates relative to firmspecific thresholds of tax toleration that are decisively affected by quality of governance — in particular by the presence of high-grade institutions delivering services that profit-maximizing firms deem worth paying for. Some key predictions of the model concerning the determinants of firms’ tax toleration and tax compliance receive broad support from empirical analyses of enterprise-level data from the World Bank’s World Business Environment Surveys.-

Survey of Simulation Models of Long-Term Care Use and Expenditure

The objective of this study is to provide a technical overview of the main simulation tools that are used for the projections of future developments in long term care systems in developed countries. The main thrust of the present analysis is that aging and uncertainties with respect to future trends in disability across individuals, and in costs required to cater to future needs, are likely to raise significant challenges both for individuals and for policy makers in the not-so-distant future, and that the supply of long-term care (LTC) is unlikely to match future demand. The main concepts used in the long term care literature are illustrated, and modelling strategies employed by different investigators are reviewed. Each of the simulation models discussed in this survey is presented in detail in the Appendix together with the relevant references. Both macrosimulation models primarily based on aggregate data at country level and microsimulation models based on individual and household survey data are considered in the present study.JRC.G.3-Econometrics and applied statistic

Studies on the Post-Communist Transition

This work is dedicated to my parents, and to my brother MariusAcknowledgements I am indebted to my supervisor, Professor Douglas Hibbs, for teaching me the discipline of self-sustaining research. Whether I have been a good apprentice or not that only the future can really tell. Professor Hibbs has been instrumental at all stages of my work. The studies included in the thesis carry many prints of our multiple discussions on my research interests. However, any inconsistencies that the reader may find in the thesis are entirely mine. I am also grateful to Professor Lennart Hjalmarsson in many respects. I recall the days when, as an undergraduate student of the Faculty of Economic Cybernetics, ASE Bucharest, I was attending the lectures of the Swedish professor on topics in Microeconomics. Little was I to know that it was going to be in his country where I’d significantly build on the foundations of my professional and personal life. Professor Hjalmarsson proved an excellent advisor and a valuable supporter of my work here in Sweden. When you owe so much to a person there are hardly any words that can accurately reflect the real extent of the associated gratitude. Time and energy are scarce resources to us all, and yet Wlodeck Bursztyn proved so generous in spending his time and energy on my writings. The opinions he expressed and the various debates we had, often in a genuine forceful Eastern European style, influenced the analyses in this thesis in many respects. I have been very fortunate to have him as a colleague in the Department of Economics, here in Göteborg. The work on this thesis heavily relied on the professional skills that had been nurture

Tax Toleration and Tax Evasion: Why Firms Enter the Unofficial Economy

In this paper we propose a model of how institutional benefits, taxation and government regulations affect the propensity of private firms to enter the unofficial economy. A central implication of the model is that profit-maximizing firms frequently will operate simultaneously in both the official and unofficial sectors. And contrary to a common view that high tax rates are intrinsically a major cause of large shadow economies, our model implies that the incentive of firms to produce underground and evade taxation depends on statutory tax rates relative to firmspecific thresholds of tax toleration. The concept of firm-specific tax toleration helps explain why tax evasion and underground production varies so greatly across enterprises operating in the same national institutional environment and facing the same regulations and tax rates. Some key predictions of the model concerning the determinants of firms’ tax toleration and the relative scale of their unofficial production receive broad support from empirical analyses of enterprise-level data from the World Bank’s World Business Environment Surveys

Institutions, Corruption and Tax Evasion in the Unofficial Economy

In this paper we propose a model of how institutional benefits, taxation and government regulations affect the productive activity of private enterprises. We consider an environment in which public officials enforcing tax and regulatory obligations are potentially corruptible, and markets for corruption may therefore arise that give firms the option of producing unofficially and evading taxes and regulations. By contrast to some previous studies that view corruption and bribery as forces driving firms out of official production into the underground economy, our model features the idea that the ‘grabbing hands’ of corrupt bureaucrats may alternatively serve as ‘helping hands’ allowing firms to exploit profitable opportunities in the unofficial sector. And contrary to a traditional view maintaining that high tax rates are intrinsically a major cause of large shadow economies, our model implies that incentives to evade taxation and produce underground depend on statutory tax rates relative to firm-specific thresholds of tax toleration. Tax toleration is determined, among other things, by firm-specific institutional benefits available to official producers and the costs of corruption required to produce unofficially. Some core predictions of the model concerning the determinants of tax toleration and the relative size of unofficial activity and tax evasion receive broad support from empirical analyses based on firm-level data from the World Business Environment Surveys sponsored by the World Bank

Tax Toleration and Tax Compliance: How Government Affects the Propensity of Firms to Enter the Uno¢ cial Economy

How do government-supplied institutional benefits and the taxation and regulation of produc- ers affect the propensity of private firms to enter the unofficial economy and evade taxation? We propose a model in which the incentive of firms to operate underground depends on tax rates relative to firm-specific thresholds of tax toleration that are decisively affected by quality of governance - in particular by the presence of high-grade institutions delivering services enhancing official production that anchor profit-maximizing firms to the official economy. Some key predictions of the model concerning the determinants of firms' tax toleration and tax compliance receive broad support from empirical analyses of enterprise-level data from the World Bank's World Business Environment Surveys.tax toleration; tax compliance; tax evasion; corruption; quality of government; institutions; unofficial production; black economy; shadow economy; underground economy; micro political economy of firm behavior