Work and tax evasion incentive effects of social insurance programs

Bérgolo, Marcelo; Cruces, Guillermo

doi:10.1016/j.jpubeco.2014.04.015

Cited by 54 publications

(34 citation statements)

References 47 publications

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“…Figure 19 reports that the implied ETI for workers in a single firm is about 0.134 while for workers in multiple firms is substantially low (0.06). This evidence is consistent with previous studies that have shown the reported taxable income response to tax incentives is stronger in contexts with lower cost of coordination for employers and employees, like in smaller firms (Bergolo and Cruces 2014;Best 2015).…”

Section: So No Responses In Gross Labor Income At All?supporting

confidence: 93%

“…We present direct evidence of gross income unilateral misreporting by the wage earners, but most importantly we document how tax evasion behavior react to local tax incentives by showing a sharp increase in underreporting just at the kink point. In line with some previous studies (Bergolo and Cruces 2014;Best 2015), we also document evidence consistent with the hypothesis of collusion between employee and employer to undereport earnings in a context of low coordination costs . These results indicate the limits of third-party based enforcement in developing countries, and highlight the importance of improving the enforcement capacity of tax authorities.…”

Section: Introductionsupporting

confidence: 92%

“…Finally, our findings also relates to a small but growing literature exploring tax evasion behavior of taxpayers using discrepancies between different reports on the same tax base, either, in workers (e.g., Kleven et al 2011;Kumler et al 2013;Bergolo and Cruces 2014;Best 2015) or firms (e.g., Fisman and Wei 2004;Carrillo et al 2017). We present direct evidence of gross income unilateral misreporting by the wage earners, but most importantly we document how tax evasion behavior react to local tax incentives by showing a sharp increase in underreporting just at the kink point.…”

Section: Introductionsupporting

confidence: 61%

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Tax Bunching at the Kink in the Presence of Low Capacity of Enforcement: Evidence From Uruguay

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ResumenUna cuestión de política de primer orden en países de ingresos bajos y medios es cómo diseñar sistemas impositivos óptimos para mejorar la capacidad del estado de apoyar el desarrollo económico. Aunque la información acerca de qué tanto y cómo los individuos responden a los impuestos es importante para el diseño de política, la evidencia para países en desarrollo es escasa. En este documento, contribuimos a llenar esta brecha al explorar cómo los contribuyentes individuales responden a los impuestos personales a las rentas del trabajo en Uruguay (IRPF). Para hacer esto, nuestro diseño de investigación utiliza registros administrativos de impuestos que cubren el universo de los contribuyentes de Uruguay, y se basa en un emfoque de bunching. Primero, encontramos una elasticidad del ingreso reportado moderada (0.16) en el primer kink del esquema de IRPF (i.e., mínimo no imponible). En segundo lugar, investigamos en detalles los mecanismos que explican estas respuestas. Encontramos que las respuestas observadas son una combinación de ajustes, tanto en el ingreso laboral bruto como en las deducciones. En particular, documentamos un uso más intensivo de las deducciones personales para los contribuyentes cercanos al kink, y evidencia sugerente de respuestas de evasión a través de la sub-declaración de ingresos laborales, tanto de manera unilateral como a partir de mecanismos de colusión entre empleadores y empleados. Nuestros resultados sugieren que las políticas deben dirigirse a ampliar la base impositiva y mejorar las capacidades de enforcement de las autoridades fiscales, en lugar de erosionar la progresividad del esquema de IRPF.Palabras clave: Impuestos a la renta personal, bunching, elasticidad del ingreso reportado, deducciones, sub-declaración de ingresos, economías en desarrollo. AbstractA first-order policy issue in low and middle income countries is how to design optimal tax systems in order to improve the state's potential of supporting economic development. Although information regarding behavioral responses to taxation is a key input for tax design, the evidence in developing contexts is still scarce. In this paper we contribute to fill this gap by exploring in detail how individual taxpayers respond to personal income taxation in Uruguay. To do this, we rely on rich administrative tax records covering the universe of Uruguayan taxpayers and implement a bunching design. First, we find a moderate implied elasticity of taxable income (0.16) in the first kink point of the tax schedule. Second, we investigate the mechanisms driving these responses extensively. We find that the observed responses are a combination of both gross labor income and deductions responses. In particular, we document a more intensive use of personal deductions for taxpayers close to the kink point, and suggestive evidence of evasion responses through unilateral and employer-employee collusion labor income misreporting. Our results suggest that policy efforts should be directed at broadening the tax base and improving the enforc...

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Section: So No Responses In Gross Labor Income At All?supporting

confidence: 93%

Section: Introductionsupporting

confidence: 92%

Section: Introductionsupporting

confidence: 61%

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Tax Bunching at the Kink in the Presence of Low Capacity of Enforcement: Evidence From Uruguay

et al. 2019

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“…Francesconi et al, 2009;Eissa & Hoynes, 2004) and developing (e.g. Bérgolo & Cruces, 2014) countries.…”

mentioning

confidence: 99%

Intra-household Behavioral Responses to Cash Transfer Programs. Evidence from a Regression Discontinuity Design

Bérgolo¹,

Galván

2018

World Development

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“…While the impact of the informality effects on tax collection can be informative (see for instance Bergolo and Cruces, 2014), measurement of the relevant elasticities is crucial for a full welfare analysis that quantifies the efficiency 3While AFAM's design implies a potential effect on the intensive margin of labor supply, we concentrate on the extensive margin of response. Unlike Kleven and Waseem (2013) or Kline and Tartari (2016), we are unable to measure (local) labor supply effects at the intensive margin since our data does not cover hours worked nor earnings (see Section 4).…”

Section: Introductionmentioning

confidence: 99%

The Anatomy of Behavioral Responses to Social Assistance When Informal Employment Is High

Bérgolo

Cruces

2018

SSRN Journal

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The disincentive effects of social assistance programs on registered (or formal) employment are a first order policy concern in developing and middle income countries. Means tests de termine eligibility with respect to some income threshold, and governments can only verify earnings from registered employment. The loss of benefit at some level of formal earnings is an implicit tax -a notch -that results in a strong disincentive for formal employment, and there is extensive evidence on its effects. We study an income-tested program in Uruguay and extend this literature by developing an anatomy of the behavioral responses to this program and by establishing its welfare implications in full. Our identification strategy is based on a sharp discontinuity in the program's eligibility rule. We rely on information on the universe of applicants to the program for the period 2004-2012 (about 400,000 individuals) from the program 's records, from administrative data on registered employment from the social security administration, and from a complementary follow-up survey with information on informal work. We construct the anatomy of the program 's effects along four dimensions. First, we establish that, as predicted by the theory, beneficiaries respond to the program's incentives by reducing their levels of registered employment by about 8 percentage points. Second, we find substantial heterogeneity in these effects: the program induces a larger reduction of formal employment for individuals with a medium probability to be a registered employee, suggesting some form of segmentation -those with a low propensity to work formally do not respond to the financial incentives of the program, probably because they have limited opportunities in the labor market to begin with. Third, the follow-up survey allows us to establish that the fall in registered employment is due to a larger extent (about two thirds) to an increase in unregistered employ ment, and to a lesser extent (about one third) to a shift towards non-employment. Fourth, we find an elasticity of participation in registered employment of about 1.7. These results imply a deadweight loss from the behavioral responses to the program of about 3.2% of total registered labor income.JEL Classification: H31, I38, J22, O17.

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Work and tax evasion incentive effects of social insurance programs

Cited by 54 publications

References 47 publications

Tax Bunching at the Kink in the Presence of Low Capacity of Enforcement: Evidence From Uruguay

Tax Bunching at the Kink in the Presence of Low Capacity of Enforcement: Evidence From Uruguay

Intra-household Behavioral Responses to Cash Transfer Programs. Evidence from a Regression Discontinuity Design

The Anatomy of Behavioral Responses to Social Assistance When Informal Employment Is High

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