(Article begins on next page) The Harvard community has made this article openly available. Please share how this access benefits you. Your story matters.

Any opinions expressed here are those of the author(s) and not those of IZA. Research published in this series may include views on policy, but the institute itself takes no institutional policy positions. The IZA research network is committed to the IZA Guiding Principles of Research Integrity. The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit organization supported by Deutsche Post Foundation. The center is associated with the University of Bonn and offers a stimulating research environment through its international network, workshops and conferences, data service, project support, research visits and doctoral program. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. IZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author. IZA Discussion Paper No. 7402

Non-compliance of firms with tax regulations is a major constraint on state capacity in developing countries. We focus on an arguably under-appreciated dimension of non-compliance: underreporting of wages by formal firms to evade payroll taxes. Comparing wage distributions for similar sets of workers in the administrative records of the Mexican social security agency and a household labor-force survey, we document extensive under-reporting of wages. We further argue that the 1997 Mexican pension reform had a differential effect by age on the incentives of workers to ensure that their wages were reported accurately. Using a difference-in-differences strategy, we present evidence that the increase in the incentive for workers to ensure accurate reports led to a significant decline in under-reporting. The results suggest that enlisting workers in monitoring their employers is an effective way to increase payroll tax compliance.

The International Growth Centre (IGC) aims to promote sustainable growth in developing countries by providing demand-led policy advice based on frontier research.

Abstract not found

bl ic Di sc lo su re A ut ho riz ed Pu bl ic Di sc lo su re A ut ho riz ed Pu bl ic Di sc lo su re A ut ho riz ed Pu bl ic Di sc lo su re A ut ho riz ed Produced by the Research Support Team

Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen

Abstract not found

Improving tax revenue collection is an important priority for developing economies throughout the world. Not only do tax revenues tend to be low as a share of GDP in absolute terms in low income countries, they are also low as a share of GDP relative to higher income economies (Figure 1). Finding mechanisms to improve tax collection is challenging on at least two fronts: (1) lack of good data on tax compliance; and (2) difficulty in finding effective instruments for improving compliance given institutional constraints. This paper makes three main contributions. First, we present new evidence on compliance patterns from a unique primary dataset in Bangladesh that links administrative tax data with firm survey data. Second, we propose an innovative mechanism to improve compliance using the power of social recognition, and present survey evidence that supports the potential power of such mechanisms. Finally, we summarize the research design for a planned field experiment that will directly test the causal effects of various forms of social recognition on voluntary compliance. Measuring tax compliance and evaluating its determinants is challenging in any context. Examining these issues in developing countries is particularly difficult due to the large size of the informal sector. Taxpayer surveys may be able to capture a representative sample of the population,

Todos os direitos reservados. É proibida a reprodução parcial ou integral do conteúdo deste documento por qualquer meio de distribuição, digital ou impresso, sem a expressa autorização do REAP ou de seu autor.