Commodity Tax Structure and Informal Activity

Abstract

Commodity tax structure affects the firm's choice between formality and informality. An increase in the specific tax rate, relative to an equivalent increase in ad valorem taxation, makes informality attractive to more firms. Formality becomes attractive at lower levels of profits under ad valorem taxation. For both the maximization of welfare subject to a revenue constraint and the unconstrained maximization of revenue, the optimal rate of specific taxation is zero.

WHO technical manual on tobacco tax administration

“…literature does not provide clear cut results on the effect of commodity tax increase on total sales and tax evasion, in noncompetitive environments (e.g. Thursby et al, 1991;Thursby and Thursby, 2000) or on the relative effects of specific and ad valorem taxes (Delipalla, 2009a(Delipalla, , 2009b. It is clear, however, that an increase in penalties or detection probability has a clear negative effect on tax evasion.…”

The Structure of Cigarette Excises in the EU: From Myths to Reality

“…The major motives for illicit trade are high tax levels, which provide strong incentives for smugglers to benefit from tax avoidance. See Delipalla (2009a) and(2009b) for these aspects of tobacco taxation. Illicit trade of tobacco products not only results in a significant loss in tax revenues, but also affects public order.…”

Public Trust, Taxes and the Informal Sector

“…Anahtar kelimeler: kayıtdışı ekonomi, vergi kaçırma, kamu güveni, alt-oyun mükemmel dengesi A common result in models dealing with an informal sector is a positive relationship between the level of tax rates and the size of the informal sector. A non-exhaustive list of the papers in this literature includes Rauch (1991), Loayza (1996), Fortin et al (1997), Ihrig and Moe (2004), Busato and Chiarini (2004), Amaral and Quintin (2006) and more recently Delipalla (2009). By treating taxes as exogenous and letting the informal sector not pay any taxes (or pay only a fraction of those paid by the formal sector), this result is immediately obvious in a two-sector (formal and informal) neoclassical growth model where the role of the government is passive.…”