Investigating the asymmetric effect of informal labor on value added tax revenues

Document Type : Original Article

Authors

1 department of Economics, university of Kurdistan

2 Department of Economics, University of Kurdistan

3 Department of Economics, university of kurdistan

4 Postdoctoral in Economic Sciences, University of Kurdistan

Abstract

In the value added tax system, the purchases of each company are announced to it by the seller company. Therefore, if a company declares the tax less than the limit, or does not pay the relevant tax, this tax will be transferred to the next buyer, for this reason, all buyers and sellers will be placed in a self-control system. And this makes all companies register in the value added tax system. But its income performance can be weakened in the case of informal labor conditions. Because the incomes from informal labor activities are hidden and not reported. Informal labor has a two-way effect on value added tax revenues, because just as informal labor has an effect on value added tax revenues, value added tax can also have an effect on informal labor. The purpose of this study is to investigate the asymmetric effect of informal labor on value added tax revenues in Iran's provinces using panel data in the years 2010 to 2018. The obtained results show that the relationship between informal labor and value added tax income is initially positive and after reaching a certain threshold level, the relationship becomes negative, which means that informal labor has a threshold point on value added tax income. Also, the results showed that the relationship between value added tax revenues and unemployment rate is negative and significant, and the relationship between value added tax revenues and population and GDP is positive and significant. Based on the obtained coefficients, the relationship between the value added tax of the previous period and the value added tax of thecurrent period is positive and significant. Also, the results show that the informal workforce is different in terms of size, and the effect on value added tax revenues in different provinces of Iran. An increase in the tax rate can generate less additional revenues than expected, and this is due to the mixed effect of informal labor, which results in a reduction of the VAT self-enforcement mechanism

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References

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Public Sector Economics Studies
Volume 3, Issue 1
April 2024
Pages 139-162

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History

  • Receive Date: 02 December 2023
  • Revise Date: 16 March 2024
  • Accept Date: 30 March 2024

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