Informality and contribution evasion: Evidence from Bulgaria

Type Working Paper
Title Informality and contribution evasion: Evidence from Bulgaria
Author(s)
Publication (Day/Month/Year) 2008
URL http://www.eea-esem.com/files/papers/EEA-ESEM/2008/810/determinants11.pdf
Abstract
This paper analyzes job informality, defined as the evasion of social security contributions. A
representative worker maximizes expected intertemporal utility by choosing the optimal fraction
of evaded taxes, which is decreasing in the survival probability and in the Bismarckian factor
characterizing the pension system. However, a fully Bismarckian system does not necessarily
minimize tax evasion in an economy with heterogenous agents.
The empirical analysis provides some support for the theoretical model, although the relationship
between subjective survival probability and probability of job informality is negative
when focusing on the old age pension, but not statistically significant when considering the
whole social security package.

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