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

  • Slonimczyk, Fabian

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.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 35404.

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Date of creation: 2011
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Handle: RePEc:pra:mprapa:35404
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  11. Gorodnichenko, Yuriy & Martinez-Vazquez, Jorge & Peter, Klara Sabirianova, 2007. "Myth and Reality of Flat Tax Reform: Micro Estimates of Tax Evasion Response and Welfare Effects in Russia," IZA Discussion Papers 3267, Institute for the Study of Labor (IZA).
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  15. Klarita G�rxhani, 2004. "The Informal Sector in Developed and Less Developed Countries: A Literature Survey," Public Choice, Springer, vol. 120(3_4), pages 267-300, 09.
  16. Hussmanns, Ralf, 2004. "Measuring the informal economy : from employment in the formal sector to informal employment," ILO Working Papers 375000, International Labour Organization.
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