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Using Public Information to Estimate Self-Employment Earnings of Informal Suppliers

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  • James Alm
  • Brian Erard

Abstract

An enduring problem in the analysis of tax evasion is the difficulty of its measurement. An especially troublesome component of tax evasion arises from informal suppliers, such as self- employed domestic workers, street-side vendors, and moonlighting tradesmen. We develop in this paper a new approach for estimating self-employment earnings of informal suppliers. Our methodology involves using national survey results on self-employment earnings within a carefully selected set of industry categories where informal activities are believed to be concentrated. Then, by comparing these national survey results on self-employment earnings to Internal Revenue Service statistics on the amounts actually reported for tax purposes, it is possible to estimate the extent of noncompliance within the selected industry categories. Our methodology relies on survey respondents being reasonably forthcoming about their earnings, which we are able to confirm through some validation exercises.
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Suggested Citation

  • James Alm & Brian Erard, 2016. "Using Public Information to Estimate Self-Employment Earnings of Informal Suppliers," Public Budgeting & Finance, Wiley Blackwell, vol. 36(1), pages 22-46, February.
  • Handle: RePEc:bla:pbudge:v:36:y:2016:i:1:p:22-46
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    File URL: http://hdl.handle.net/10.1111/pbaf.12083
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    References listed on IDEAS

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    1. Kaushal Joshi & Glenita Amoranto & Rana Hasan, 2011. "Informal Sector Enterprises: Some Measurement Issues," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 57, pages 143-165, May.
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    8. Derek Blades, 2011. "Estimating Value Added Of Illegal Production In The Western Balkans," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 57(1), pages 183-195, March.
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    Cited by:

    1. Marysol McGee & Barbara J. Robles, 2016. "Exploring Online and Offline Informal Work : Findings from the Enterprising and Informal Work Activities (EIWA) Survey," Finance and Economics Discussion Series 2016-089, Board of Governors of the Federal Reserve System (U.S.).

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    More about this item

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access

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