The effect of taxation on informal employment: evidence from the Russian flat tax reform

Slonimczyk, Fabian (2011): The effect of taxation on informal employment: evidence from the Russian flat tax reform. Forthcoming in: Research in Labor Economics (2010)

Abstract

The 2001 Russian tax reform reduced average tax rates for the personal income tax and the payroll or social tax. It also made the tax structure more regressive. Because individuals in the lower income bracket were for the most part not affected, it is possible to estimate the effects of the reform using a differences-in-differences approach. I study the effect of the reform on informal employment. Informality is defined using information on employment registration and self-employment. Applying parametric and semi-parametric techniques, I find evidence that the tax reform led to a significant reduction in the fraction of informal employees. Among the different forms of informality I study, the reform seems to have had the strongest effect on the prevalence of informal irregular activities. I also document stronger effects on individuals who benefited from the largest reductions in tax rates.

• Item Type: MPRA Paper
• Language: English
• Keywords: informal sector; entrepreneurship; tax reform; difference-in-difference; transition; Russia
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O17 - Formal and Informal Sectors ; Shadow Economy ; Institutional Arrangements; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs; P - Economic Systems > P2 - Socialist Systems and Transitional Economies; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H24 - Personal Income and Other Nonbusiness Taxes and Subsidies

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