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Income underreporting among the self-employed: a permanent income approach
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Economics, Uppsala Center for Fiscal Studies.
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Economics, Uppsala Center for Fiscal Studies.
2017 (English)In: European Economic Review, ISSN 0014-2921, E-ISSN 1873-572X, Vol. 92, 24 p.92-109 p.Article in journal (Refereed) Published
Abstract [en]

The consumption based method to estimate underreporting among self-employed, introduced by Pissarides andWeber (1989), is one of the workhorses in the empirical literature on tax evasion/avoidance. We show that failure to account for transitory income fluctuations in current income may overestimate the degree of underreporting by around 40 percent. Previous studies typically use instrumental variable methods to address the issue. In contrast, our access to registry based longitudinal income measures allows a direct approach based on more permanent income measures. This also allows us to evaluate the performance of a list of instruments widely used in the previous literature. Our analysis shows that capital income is the most suitable instrument in our application, while education and housing related measures do not seem to satisfy the exclusion restrictions.

Place, publisher, year, edition, pages
2017. Vol. 92, 24 p.92-109 p.
Keyword [en]
Income underreporting, tax evasion, self-employment, Engel curves
National Category
Economics
Research subject
Economics
Identifiers
URN: urn:nbn:se:uu:diva-255648DOI: 10.1016/j.euroecorev.2016.12.001ISI: 000395600400006OAI: oai:DiVA.org:uu-255648DiVA: diva2:822977
Funder
The Jan Wallander and Tom Hedelius Foundation, P2015-0147:1 P2013-0025:1Forte, Swedish Research Council for Health, Working Life and Welfare
Available from: 2015-06-17 Created: 2015-06-17 Last updated: 2017-04-25Bibliographically approved

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Engström, PerHagen, Johannes
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