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

25 Pages Posted: 2 Mar 2016

See all articles by James Alm

James Alm

Tulane University

Brian Erard

B. Erard & Associates

Date Written: Spring 2016

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 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

Alm, James and Erard, Brian, Using Public Information to Estimate Self‐Employment Earnings of Informal Suppliers (Spring 2016). Public Budgeting & Finance, Vol. 36, Issue 1, pp. 22-46, 2016, Available at SSRN: https://ssrn.com/abstract=2740799 or http://dx.doi.org/10.1111/pbaf.12083

James Alm (Contact Author)

Tulane University ( email )

United States
5048628344 (Phone)

Brian Erard

B. Erard & Associates ( email )

2350 Swaps Ct.
Reston, VA 20191
United States

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