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Please use this identifier to cite or link to this item: http://hdl.handle.net/10625/48803

Title: Work and tax evasion incentive effects of social insurance programs : evidence from an employment based benefit extension
Authors: Bérgolo, Marcelo
Cruces, Guillermo
Keywords: LABOUR SUPPLY
WORK INCENTIVES
TAX EVASION
SOCIAL INSURANCE
LABOUR LAW
LABOUR LEGISLATION
LABOUR MARKET
LABOUR POLICY
LABOUR PRODUCTIVITY
INFORMAL SECTOR
SOCIAL POLICY
SOCIAL LEGISLATION
SOCIAL SECURITY
SOCIAL EQUITY
WAGE INCENTIVES
Issue Date: 2012
Publisher: Center for Distributive, Labor and Social Studies (CEDLAS), Universidad Nacional de La Plata, AR
Abstract: The impact of the tax and benefit system on work incentives is one of the most salient policy issues in labor and public economics. Despite a concurrent ample literature on tax evasion, there is relatively little analysis of the joint work and evasion incentive effects introduced by social insurance and related programs. This paper evaluates the behavioral responses of workers in these dimensions. Using a quasi-experimental approach, it studies a large scale expansion of employment based benefits in the social insurance system of a middle income country, Uruguay. The policy change extended the coverage of a compulsory, in-work and payroll tax financed health insurance program to the dependent children of private sector salaried workers, but only to full-time registered employees – those complying with payroll tax and social security contribution requirements. The results indicate that individuals that benefited from the reform responded to these financial incentives as predicted by economic theory, significantly increasing their labor force participation and hours of work, with most of the increase in registered (or “on”-the-books) employment. The reform only required one registered employee within the household to warrant the extended coverage, and the results provide evidence on disincentives for secondary workers, which reduced their labor supply in the form of registered employment. The analysis also uncovers complex patterns of tax evasion responses besides the reduction in off-the-books employment (a fall in outright tax evasion). Exploiting a unique feature of the data, the results indicate an adjustment along the intensive margin of evasion, with an increase in the underreporting of salaried earnings for registered employees following the reform. The conclusion illustrates how the consideration of these additional margins that are not contemplated by the canonical model has relevant policy consequences.
URI: http://hdl.handle.net/10625/48803
Project Number: 105653
Project Title: Labour Markets for Inclusive Growth in Latin America
Document Delivery: To enquire about document delivery, contact the IDRC Library : library@idrc.ca or 613-696-2578 / Pour plus de renseignements sur la livraison de documents, communiquer avec la bibliothèque du CRDI : bibliothèque@crdi.ca ou 613-696-2578
Appears in Collections:2010-2019 / Années 2010-2019
IDRC Research Results / Résultats de recherches du CRDI
Research Results (GGP) / Résultats de recherches (MCP)
Labour Markets and Migration / Marchés du travail et migrations

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