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

MPRA Paper from University Library of Munich, Germany

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.

Keywords: informal sector; entrepreneurship; tax reform; difference-in-difference; transition; Russia (search for similar items in EconPapers)
JEL-codes: H24 J3 O17 P2 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-acc, nep-cis, nep-iue, nep-pbe and nep-tra
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Citations: View citations in EconPapers (31)

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