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Tax rates, governance, and the informal economy in high-income countries

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dc.affiliation.dptoUC3M. Departamento de EconomĆ­aes
dc.contributor.authorKuehn, Zoƫ
dc.contributor.editorUniversidad Carlos III de Madrid. Departamento de EconomĆ­a
dc.date.accessioned2008-01-14T12:49:17Z
dc.date.available2008-01-14T12:49:17Z
dc.date.issued2007-12
dc.description.abstractThis paper studies the mechanisms behind the informal economy in high-income countries. About 16.3% of output in high-income OECD countries was produced informally in 2001-02. In a recent paper Davis and Henrekson [2004] show that there exists a positive relationship between tax rates and the informal economy for high-income OECD countries. Existing models of the informal economy mostly focus on developing countries. To account for the informal economy in high-income countries, build a model economy, following Lucas [1978], in which agents of different managerial abilities decide to become workers, managers of informal firms, or managers of formal firms. In contrast to formal managers, managers of informal firms do not pay taxes but run the risk of getting caught, taxed, and fined. A calibrated version of the model economy is able to generate the observed differences in informal economy of 21 high-income countries. Although tax rates are crucial for explaining the observed differences in informal economy, the quality of governance, the extent to which these tax rates are enforced, also plays an important role. Policy experiments show that by improving the enforcement of their tax policies countries can reduce informality. A smaller informal economy is accompanied by larger firms and higher productivity.
dc.format.mimetypeapplication/pdf
dc.identifier.issn2340-5031
dc.identifier.repecwe078551
dc.identifier.urihttps://hdl.handle.net/10016/1151
dc.language.isoeng
dc.language.isoeng
dc.relation.ispartofseriesUC3M Working papers. Economics
dc.relation.ispartofseries07-51
dc.rightsAtribuciĆ³n-NoComercial-SinDerivadas 3.0 EspaƱa
dc.rights.accessRightsopen access
dc.rights.urihttp://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.subject.ecienciaEconomĆ­a
dc.subject.jelO17
dc.subject.jelJ22
dc.subject.jelH2
dc.subject.otherInformal economies
dc.subject.otherHigh-income countries
dc.subject.otherTax rates
dc.subject.otherGovernance
dc.titleTax rates, governance, and the informal economy in high-income countries
dc.typeworking paper*
dspace.entity.typePublication
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