Characteristics of households in the informal sector of an emerging economy

S. Sookram, P. K. Watson and Friedrich Schneider ()

Applied Economics, 2009, vol. 41, issue 27, 3545-3559

Abstract: Using the case study of Trinidad and Tobago, we investigate the socio-economic, demographic and attitudinal characteristics of households that participate in the informal sector of an emerging economy and their perception of the risk of detection by tax authorities while doing so. Data are gathered from a cross-sectional field survey covering 570 households. Results using multinomial logit and ordered probit models suggest that households are motivated to participate in the informal sector when members spend little time in formal sector activity, believe that taxes are too high and their incomes are too low, have dependents to support and believe that the resulting tax evasion will go undetected. Their perception of the risk of detection by the tax authority is determined largely by the income they earn in the formal sector and the extent of government bureaucracy prevailing there.

Date: 2009
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DOI: 10.1080/00036840701493733

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