Aloys Prinz

The hard shadow of the Greek economy: New estimates of the size of the underground economy and its fiscal impact

This article presents new estimates of the Greek underground economy and explores the link between the underground economy and aggregate debt. We show that the Greek underground economy has been underestimated heavily and has been on a rising trend again since Greece adopted the Euro. We also present evidence that the size of the underground economy is positively related to the debt-to-GDP ratio, implying that fighting the underground economy is also conducive to financial and macroeconomic stability. Our results suggest that for our sample of 11 EMU member countries, the loss of the inflation tax as an economic policy instrument had drastic consequences. While the underground economy did not have a statistically significant impact on aggregate debt before the introduction of the Euro, it has pushed up the debt-to-GDP ratio in our sample since.

Labour supply with habit formation

Abstract In a model with habit-forming labour supply we show that standard myopic utility maximisation of a person weakly addicted to a harmful habit is consistent with empirical results on labour supply.

In the Shadow of Public Debt: Are there Relations between Public Debt and the Shadow Economy?

The question of this paper is whether there is a relation between the size of the shadow economy, the inflation tax and the debt-to-GDP ratio. This relationship is relevant for an understanding of sovereign debt crisis in a currency union due to the loss of a national inflation tax and due to tax evasion as a consequence of sizeable shadow economies. In this paper, empirical evidence is presented for the effect of the size of the shadow economy on the debt-to-GDP ratio as well as for the debt-increasing effect of the start of the European Monetary Union in 1999.

Should all the world be taxed

Governments are beginning to fear that the establishment of the “information society” will cause their revenue from taxation to shrink: economic activities in the virtual world of the Internet could escape the application of value added tax. Are these fears justified? Would a “bit tax” solve the problem?

Endogenous Fertility, Altruistic Behavior across Generations, and Social Security Systems

The present paper explores the impact of an intergenerational externality on private fertility decisions, under a pay-as-you-go social security system. The analysis is performed in the framework of a steady state growth model, with overlapping generations. To explain why households have children, altruism between parents and children is assumed. Surprisingly, the effects of altruism are not symmetric. The private fertility decisions are optimal only if children “love” their parents, because children then make private transfers at exactly the right level.

Tax Evasion and the Shadow Economy

Leading scholars examine recent evidence from theoretical and empirical research on tax compliance and tax evasion, and provide an in-depth analysis of underlying methods. Strategies to fight tax evasion are evaluated and the motivations behind it are explored, as are the impact and size of the shadow economy in Europe. As well as promoting a better understanding of the issues, this book intends to stimulate further debate and, in so doing, broaden the exchange of ideas and concepts.

Methods to Reanalyze Tax Compliance Experiments: Monte Carlo Simulations and Decision Time Analysis

Tax compliance experiments are widely used in public finance and economic psychology. To analyze the data of the experiments, standard econometric and psychometric techniques are used. In this article, the authors show that it may be useful to employ additional data analysis tools to gain better statistical confidence on the results and to retrieve more information from the data sets, respectively. To do this, the authors reanalyze data from the tax compliance experiments of Kastlunger et al. These experiments provide evidence that after tax audits, the rates of tax compliance decrease systematically (‘‘bomb crater effect’’). First, the statistical validity of this result is tested using Monte Carlo simulations. Second, the authors extend the analysis of Kastlunger et al. using by-products of the data that had not been used in the original article to find out whether the tax compliance decisions were taken automatically or thoughtfully.

Memorability of Nobel Prize laureates in economics

ABSTRACT In this article, a measure for the Relative Memorability of Nobel Prize winners is proposed, based on an exponential forgetting curve. The intention is to provide a measure that captures the fading nature of memories with respect to individual Nobel Prize winners in the cultural collective memory. For fame and achievement of Nobel Prize laureates, measurement methods are already developed. However, from a cultural viewpoint, the question is how well these persons are remembered. Applying the concept of memorability, as defined in this article, to Nobel laureates in Economics, Milton Friedman, Paul Krugman and Joseph Stiglitz turn out to be the top-three economists in the collective memory. Moreover, the ranking of economists according the collective memory, their fame and their achievement produce quite different results.

Simulations in Tax Compliance Research: What Are They Good For?

Experimental research is nowadays evidently the ‘gold standard’ of tax research. Simulations, especially with the so-called ‘agentbased models,’ are commonly used in economics as a research tool. Based on theoretical models, empirical results, and insights gained from experiments, simulations enable the study of whole societies structured by networks of agents, with respect to collective rather than individual reactions to taxation. The quality of the results, however, depends among other things on the inputs from empirical and experimental research employed to calibrate simulation models, as well as the structure of agent networks. Although simulations cannot in fact provide better explanations of tax compliance and evasion than economic and psychological research, they are nevertheless a new tool of research that yields additional insight into the aggregate dynamic behavior of agents in tax policy regimes.

Introduction to the Special Issue: “The Shadow Economy, Tax Evasion, and Money Laundering”

We dedicate this special issue of Public Finance Review to the memory of our colleague and friend Michael Pickhardt. Michael passed away on October 2, 2012, after suffering from a serious illness for a longer time. With Michael, we lost a skilled, active, and respected researcher. More importantly, we lost a good, personal friend. We miss him dearly. This special issue represents papers on the cutting edge of research on the shadow economy, tax evasion, and money laundering. Getting individuals and firms to pay their legally due tax liabilities has been an enduring problem for government, one that has attracted increasing attention from scholars in recent years. Even so, there is much that we still do not fully understand. The existence of ‘‘tax evasion’’ is related to (if not the same as) the presence of the so-called ‘‘shadow economy’’, also known as the underground economy, the informal sector, the black economy, the unofffical economy, and other similar names. The links between tax evasion and the shadow economy have often been recognized and examined in research. Both phenomena are also related to ‘‘money laundering.’’ These links are much less frequently considered, but all money earned in some