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Threshold, Informality, and Partitions of Compliance

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  • Kanbur, Ravi
  • Keen, Michael

Abstract

This paper aims to establish and explore the links between two threads in the public finance literature. One is the use of tax thresholds to partition taxpayers into those who are liable to pay tax and those who are not. The other is the notion of ‘informality’ as a central challenge for tax design and implementation. Several insights emerge. First, the results make clear that the term ‘informal’ as used in the literature is imprecise and can consequently be very misleading: the models reveal a range of compliant and non-compliant behaviors with very different welfare and revenue implications. Second, the various forms of behavior considered suggest optimal thresholds generally higher than would otherwise be the case, with quite complicated implications for the associated patterns of (non)-compliance. Third, when (as is realistic) firms and individuals face multiple tax and non-tax obligations, the setting of optimal thresholds is considerably more complex. Copyright Springer Science+Business Media New York (outside the USA) 2014
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Kanbur, Ravi & Keen, Michael, 2014. "Threshold, Informality, and Partitions of Compliance," Working Papers 180136, Cornell University, Department of Applied Economics and Management.
  • Handle: RePEc:ags:cudawp:180136
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    File URL: http://ageconsearch.umn.edu/record/180136/files/Cornell-Dyson-wp1411.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Rauhanen, Timo & Harju, Jarkko & Matikka, Tuomas, 2016. "The effects of size-based regulation on small firms: evidence from VAT threshold," Working Papers 75, VATT Institute for Economic Research.
    2. Christian Ebeke & M Mansour & Grégoire Rota-Graziosi, 2016. "The Power to Tax in Sub-Saharan Africa: LTUs, VATs, and SARAs," Working Papers halshs-01332049, HAL.
    3. Asatryan, Zareh & Peichl, Andreas, 2016. "Responses of firms to tax, administrative and accounting rules: Evidence from Armenia," ZEW Discussion Papers 16-065, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    4. International Monetary Fund, 2016. "Albania; Selected Issues," IMF Staff Country Reports 16/143, International Monetary Fund.
    5. Anuradha Joshi & Wilson Prichard & Christopher Heady, 2014. "Taxing the Informal Economy: The Current State of Knowledge and Agendas for Future Research," Journal of Development Studies, Taylor & Francis Journals, vol. 50(10), pages 1325-1347, November.
    6. repec:kap:itaxpf:v:25:y:2018:i:1:d:10.1007_s10797-017-9443-6 is not listed on IDEAS
    7. Miriam Bruhn & Jan Loeprick, 2016. "Small business tax policy and informality: evidence from Georgia," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(5), pages 834-853, October.
    8. repec:bla:rdevec:v:21:y:2017:i:4:p:939-961 is not listed on IDEAS

    More about this item

    Keywords

    Production Economics; Research and Development/Tech Change/Emerging Technologies;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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