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The effect of taxation on informal employment: evidence from the Russian flat tax reform

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  • Slonimczyk, Fabian

Abstract

The 2001 Russian tax reform reduced average tax rates for the personal income tax and the payroll or social tax. It also made the tax structure more regressive. Because individuals in the lower income bracket were for the most part not affected, it is possible to estimate the effects of the reform using a differences-in-differences approach. I study the effect of the reform on informal employment. Informality is defined using information on employment registration and self-employment. Applying parametric and semi-parametric techniques, I find evidence that the tax reform led to a significant reduction in the fraction of informal employees. Among the different forms of informality I study, the reform seems to have had the strongest effect on the prevalence of informal irregular activities. I also document stronger effects on individuals who benefited from the largest reductions in tax rates.

Suggested Citation

  • Slonimczyk, Fabian, 2011. "The effect of taxation on informal employment: evidence from the Russian flat tax reform," MPRA Paper 35404, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:35404
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    References listed on IDEAS

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    Cited by:

    1. Fabián Slonimczyk, 2014. "Informal employment in emerging and transition economies," IZA World of Labor, Institute for the Study of Labor (IZA), pages 1-59, May.
    2. Anna Lukiyanova, 2015. "Earnings inequality and informal employment in Russia," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 23(2), pages 469-516, April.
    3. Alexander Libman & Janis N. Kluge, 2017. "Sticks or Carrots? Comparing Effectiveness of Government Shadow Economy Policies in Russia," Working Papers 364, Leibniz Institut für Ost- und Südosteuropaforschung (Institute for East and Southeast European Studies).
    4. H. Lehmann & A. Zaiceva, 2013. "Informal Employment in Russia: Incidence, Determinants and Labor Market Segmentation," Working Papers wp903, Dipartimento Scienze Economiche, Universita' di Bologna.
    5. Cristina Fernández & Leonardo Villar, 2016. "A Taxonomy of Colombia’s Informal Labor Market," COYUNTURA ECONÓMICA, FEDESARROLLO, vol. 46(1), pages 15-50, June.
    6. Muravyev, Alexander & Oshchepkov, Aleksey, 2013. "Minimum Wages, Unemployment and Informality: Evidence from Panel Data on Russian Regions," IZA Discussion Papers 7878, Institute for the Study of Labor (IZA).
    7. Bartha, Zoltán, 2014. "Mid-term Effects of the Flat Rate Personal Income Tax in Hungary," MPRA Paper 61890, University Library of Munich, Germany.
    8. Karine Torosyan & Randall K. Filer, 2014. "Tax reform in Georgia and the size of the shadow economy," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 22(1), pages 179-210, January.
    9. Francesconi, Marco & Slonimczyk, Fabian & Yurko, Anna, 2017. "Moving On Up for High School Graduates in Russia: The Consequences of the Uni ed State Exam Reform," CEPR Discussion Papers 11996, C.E.P.R. Discussion Papers.
    10. H. Lehmann & A. Muravyev, 2012. "Labor Market Institutions and Informality in Transition and Latin American Countries," Working Papers wp854, Dipartimento Scienze Economiche, Universita' di Bologna.
    11. Hartmut Lehmann & Anzelika Zaiceva, 2013. "Informal Employment in Russia: Definitions, Incidence, Determinants and Labour Market Segmentation," OECD Economics Department Working Papers 1098, OECD Publishing.
    12. 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.
    13. Fabián Slonimczyk & Vladimir Gimpelson, 2015. "Informality and mobility," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 23(2), pages 299-341, April.
    14. Slonimczyk, Fabian & Gimpelson, Vladimir, 2013. "Informality and Mobility: Evidence from Russian Panel Data," IZA Discussion Papers 7703, Institute for the Study of Labor (IZA).
    15. Lehmann, Hartmut & Zaiceva, Anzelika, 2013. "Re-defining Informal Employment and Measuring its Determinants: Evidence from Russia," IZA Discussion Papers 7844, Institute for the Study of Labor (IZA).
    16. Anna Zudina, 2013. "Do informal workers make an underclass? An analysis of subjective social status," HSE Working papers WP BRP 24/SOC/2013, National Research University Higher School of Economics.
    17. Hazans, Mihails, 2011. "Informal Workers across Europe: Evidence from 30 Countries," IZA Discussion Papers 5871, Institute for the Study of Labor (IZA).

    More about this item

    Keywords

    informal sector; entrepreneurship; tax reform; difference-in-difference; transition; Russia;

    JEL classification:

    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • P2 - Economic Systems - - Socialist Systems and Transition Economies
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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