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

Author

Listed:
  • James Alm

    () (Department of Economics, Tulane University)

  • Brian Erard

    (B. Erard & Associates)

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.

Suggested Citation

  • James Alm & Brian Erard, 2015. "Using Public Information to Estimate Self-Employment Earnings of Informal Suppliers," Working Papers 1517, Tulane University, Department of Economics.
  • Handle: RePEc:tul:wpaper:1517
    as

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    File URL: http://repec.tulane.edu/RePEc/pdf/tul1517.pdf
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    References listed on IDEAS

    as
    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.
    2. Naomi E. Feldman & Joel Slemrod, 2007. "Estimating tax noncompliance with evidence from unaudited tax returns," Economic Journal, Royal Economic Society, vol. 117(518), pages 327-352, March.
    3. Erik Hurst & Geng Li & Benjamin Pugsley, 2014. "Are Household Surveys Like Tax Forms? Evidence from Income Underreporting of the Self-Employed," The Review of Economics and Statistics, MIT Press, vol. 96(1), pages 19-33, March.
    4. A. C. Kulshreshtha, 2011. "Measuring The Unorganized Sector In India," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 57, pages 123-134, May.
    5. Feinstein, Jonathan S, 1990. "Detection Controlled Estimation," Journal of Law and Economics, University of Chicago Press, vol. 33(1), pages 233-276, April.
    6. Per Engstrom & Bertil Holmlund, 2009. "Tax evasion and self-employment in a high-tax country: evidence from Sweden," Applied Economics, Taylor & Francis Journals, vol. 41(19), pages 2419-2430.
    7. 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.
    8. James Alm, 2012. "Measuring, explaining, and controlling tax evasion: lessons from theory, experiments, and field studies," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(1), pages 54-77, February.
    9. Pissarides, Christopher A. & Weber, Guglielmo, 1989. "An expenditure-based estimate of Britain's black economy," Journal of Public Economics, Elsevier, vol. 39(1), pages 17-32, June.
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    Keywords

    tax evasion; informal suppliers;

    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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