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Informal Sector and Taxation

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  • Jellal, Mohamed

Abstract

In this paper, we present a model of tax evasion in the presence of imperfect auditing. We show that there is a clear link between the degree of observability associated with a given taxpayer or activity and that taxpayer’s optimal declaration strategy with respect to fiscal agency. We also show that the degree of observability is critical in determining the optimal policies to be followed by the fiscal authorities. Our imperfect monitoring approach provides a new strategy for understanding the informal sector in LDCs, which can be interpreted as that group of economic activities characterized by low observability.

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  • Jellal, Mohamed, 2009. "Informal Sector and Taxation," MPRA Paper 17129, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:17129
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Informal sector; information and observability; tax evasion; taxation;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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