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Using Public Information to Estimate Self‐Employment Earnings of Informal Suppliers
Author(s) -
Alm James,
Erard Brian
Publication year - 2016
Publication title -
public budgeting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.694
H-Index - 30
eISSN - 1540-5850
pISSN - 0275-1100
DOI - 10.1111/pbaf.12083
Subject(s) - earnings , internal revenue , tax evasion , business , evasion (ethics) , revenue , self employment , informal sector , set (abstract data type) , labour economics , service (business) , economics , public economics , accounting , marketing , finance , computer science , economic growth , entrepreneurship , immune system , immunology , biology , programming language
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 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.