Archive for March 20, 2015

TAX EVASION DYNAMICS: Introduction

March 20, 2015


The U.S. tax system relies on a form of voluntary compliance. Under U.S. law, taxpayers are required to assist tax authorities by reporting their incomes honestly and paying taxes based on their reported incomes. The system is actively enforced by the Internal Revenue Service (IRS) and the courts, who can impose substantial penalties for noncompliance. Nevertheless, tax evasion is a major concern in the United States, and even more so in other countries.

Individuals underreport approximately 10.6% of their incomes annually in the United States, and the IRS estimates that tax evasion reduces U.S. tax collections by $190 billion annually (Herman, 1998). Little is understood about the factors that determine how much income individuals report to the government and, of particular interest to policymakers, about the way in which aggregate compliance responds to changes in the economic and policy environment.
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TRADE REFORM: Conclusion

March 18, 2015

Proponents of a general equilibrium framework could simply argue that we cannot capture the impact in this partial equilibrium, plant-level analysis. However, the results do point to the importance of foreign investment, export orientation, and technological change (as captured by royalty payments) in driving wage inequality. Since there were significant changes in both foreign investment and export orientation during this period, with rapid increases in both, these results suggest that openness certainly does matter.

Further analysis, on a sample with greater variation over time in many of the dependent variables, is needed to analyze the importance of these factors. Nevertheless, there are many still unexplained sources of increasing wage inequality in Mexico, as is clear from the significance of the time dummies in Table 5.
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TRADE REFORM: Wage Inequality and Globalization 6

March 18, 2015


The relative wages of white-collar workers are higher in medium-size plants, with less than 750 workers. Relative white-collar wages are also higher in more capital-intensive plants. Most of the dummy variables for the capital-labor quintiles are positive and statistically significant, and all of the plant-size dummy variables are positive and generally statistically significant. Relative wages are positively correlated with the share of profit-sharing payments in plant labor costs, indicating that the wage gap is higher in plants that have profit-sharing arrangements. Finally, the increasingly less negative and significant coefficients on the year dummy variables indicate that there is a strong time trend towards increasing wage inequality that is not explained by observable plant or industry characteristics.

The OLS regressions with the relative employment of white-collar workers as the dependent variable are reported in Table 6. The impact of tariffs and quotas is again mixed, depending on the specification. Across the levels specifications, we generally find that high tariffs are negatively associated with relative skilled employment, while high quotas are positively associated with the relative employment of white-collar labor.
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