Location: Latvia
What we pay in the shadows: Labor tax evasion, minimum wage hike and employment
New SSE Riga/BICEPS research paper by Nicolas Gavoille (SSE Riga, BICEPS) and Anna Zasova (BICEPS).
Abstract. The interactions between minimum wage policy and tax evasion remain largely unknown. We study firm-level employment effects of a large and biting minimum wage increase in the context of widespread wage underreporting. We apply machine learning to classify firms between tax-compliant and tax-evading using a unique combination of Latvian administrative and survey data. We then show that firms engaged in labor tax evasion are insensitive to the minimum wage shock. Our results indicate that these firms use wage underreporting as an adjustment margin, converting (part of) undeclared cash payments into legal wage. Increasing minimum wage contributes to tax rule enforcement, but comes at the cost of negative employment consequences for compliant firms.
Keywords: Minimum wage, employment, tax evasion
JEL: J08, J38, H26
Gender earnings differences in Latvia during transition
Transition and Beyond: Women on the Labour Market in the Context of Changing Social Norms. A new FROGEE policy brief on the situation in the region, containing an overview of the situation in Latvia written by Anna Zasova (BICEPS).
After a short overview of women’s position on the labour market, this brief presents a simple exercise focusing on the top of the earnings distribution, which illustrates the development of gender earnings differences in Latvia since 1996. The results suggest that Latvian women are well-represented among top earners: the share of women in the top earnings percentile is about 30%. This share was growing until mid-2000s, but since then it has been gradually declining . The gender gap in median earnings is the largest at the top end of the distribution. We also show that older workers faced the largest gender earnings gap in 1996, but it has been steadily declining since then.
The full Report is available here.
Reports from Armenia, Belarus, Georgia, Poland, Ukraine and Russia are available in English and the national languages here.
About FROGEE Policy Briefs
FROGEE Policy Briefs is a special series aimed at providing overviews and the popularization of economic research related to gender equality issues. Debates around policies related to gender equality are often highly politicized. We believe that using arguments derived from the most up to date research-based knowledge would help us build a more fruitful discussion of policy proposals and in the end achieve better outcomes.
The aim of the briefs is to improve the understanding of research-based arguments and their implications, by covering the key theories and the most important findings in areas of special interest to the current debate. The briefs start with short general overviews of a given theme, which are followed by a presentation of country-specific contexts, specific policy challenges, implemented reforms and a discussion of other policy options.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
State Research Programme “Reducing the Shadow Economy to Ensure Sustainable Development of the Latvian State”, project “Researching the Shadow Economy in Latvia (RE:SHADE)” (2020-2022)
Baltijas Starptautiskā Ekonomikas Politikas studiju centra (BICEPS) iesniegtais projektu pieteikums “Ēnu ekonomikas izpēte Latvijā (RE:SHADE)” (Nr. VPP-FM-2020/1-0005) uzvarēja Latvijas Zinātnes padomes 2020. gada 6. maijā izsludinātajā valsts pētījumu programmas “Ēnu ekonomikas mazināšana valsts ilgtspējīgas attīstības nodrošināšanai” projektu pieteikumu atklātajā konkursā, kurš noslēdzās 4. jūnijā. Projektu vadīs Dr. Arnis Sauka, kurš ir BICEPS Asociētais Pētnieks un Rīgas Ekonomikas augstskolas (SSE Riga) profesors. Tā pat projektā iesaistīti profesors Tālis Putniņš, profesors Frederiks Šneiders (Friederik Schneider), profesors Kolins Viljams (Colin Williams), Dr. Andris Saulītis, Dr. Dimitrijs Kravčenko, Dr. Nikolā Gavoille (Nicolas Gavoille), Dr. Anna Zasova, Juris Stinka, kā arī studenti.
Valsts pētījumu programmas “Ēnu ekonomikas mazināšana valsts ilgtspējīgas attīstības nodrošināšanai” virsmērķis ir mazināt ēnu ekonomiku un veicināt iekļaujošu un uz ilgtspējīgu attīstību vērstu ekonomisko izaugsmi, kā arī produktīvas un konkurētspējīgas uzņēmējdarbības vides attīstību, tādējādi paaugstinot sabiedrības labklājību Latvijā. Programmas mērķi ir paplašināt zināšanu un analītisko bāzi ekonomikas un finanšu nozarē, stiprināt saikni starp pētniecību un valsts rīcībpolitiku, veicināt sabiedrībā izpratni par ēnu ekonomikas negatīvo ietekmi un nodokļu saistību labprātīgas izpildes nozīmi.
Piedāvāto pabalstu un nodokļu reformu ietekme uz iedzīvotāju ienākumiem: kas būs galvenie ieguvēji?
Nesen publiskajā telpā parādījās informācija par nodokļu un pabalstu reformām, kuras Latviju varētu sagaidīt nākamajos gados. Šajā rakstā mēs apskatam dažas no piedāvātajām reformām no ienākumu sadalījuma un nevienlīdzības viedokļa.
Atbalsts ģimenēm ar bērniem
– Ģimenes valsts pabalsta paaugstināšanas rezultātā visvairāk iegūst trūcīgākās mājsaimniecības: viņu ienākumi pieaug vidēji par aptuveni 3.5%, bet turīgāko mājsaimniecību ienākumi – mazāk kā par 0.5%;
– Ja prioritāte ir atbalstīt trūcīgas mājsaimniecības un budžeta līdzekļi ir ierobežoti, IIN atvieglojuma par apgādājamiem bērniem aizstāšana ar jaunu pabalstu strādājošajiem vecākiem ir efektīvāks risinājums nekā ģimenes valsts pabalsta palielināšana.
Diferencētā neapliekamā minimuma (DNM) reformas
– Tās samazinās darbaspēka nodokļu slogu, bet neviena no šīm reformām būtiski neietekmēs ienākumu nevienlīdzības rādītājus, jo lielākie ieguvēji ir mājsaimniecības ar vidējiem rīcībā esošajiem ienākumiem. Trūcīgākās un turīgākās mājsaimniecības iegūs salīdzinoši maz.
IIN likmju izmaiņas un diferencētā neapliekamā minimuma aizstāšana ar fiksētā apmēra neapliekamo minimumu
– No piedāvātajām IIN izmaiņām iegūs visas iedzīvotāju grupas, bet lielākās IIN reformu ieguvējas ir salīdzinoši turīgas Latvijas mājsaimniecības, kas atspoguļosies arī ienākumu nevienlīdzības pieaugumā;
– Šis augsto algu saņēmēju ieguvums galvenokārt nāk no neapliekamā minimuma palielinājuma, jo piedāvātais fiksētais neapliekamais minimums pārsniedz maksimālo DNM (EUR 300), kas tiek piemērots 2020. gadā.
Fertility enhancing policies in Latvia
Economics of Childbearing and Pronatalist Policies. A new FROGEE policy brief on the situation in the region, containing an overview of the situation in Latvia written by Nicolas Gavoille (SSE Riga, BICEPS), Anna Pļuta (BICEPS) and Anna Zasova (BICEPS)
Latvia is a country with a relatively low fertility rate. In the a late nineties and the first half of the 2000s, a persistently negative net migration ratio and a declining population made the fertility rate a particularly sensitive political issue and Latvia introduced a range of fertility enhancing programs, most of which are available to parents with children nowadays. In this brief, we argue that while these programs are likely to have played an important role in encouraging fertility, the exact impact is hard to identify. The reason is that the government spending on family and children-related measures in recent years had a strong procyclical pattern , which makes it practically impossible to disentangle the effect of the policies from the effect of the economic cycle.
The full Report is available here.
Reports from Armenia, Belarus, Georgia, Poland, Ukraine and Russia are available in English and the national languages here.
About FROGEE Policy Briefs
FROGEE Policy Briefs is a special series aimed at providing overviews and the popularization of economic research related to gender equality issues. Debates around policies related to gender equality are often highly politicized. We believe that using arguments derived from the most up to date research-based knowledge would help us build a more fruitful discussion of policy proposals and in the end achieve better outcomes.
The aim of the briefs is to improve the understanding of research-based arguments and their implications, by covering the key theories and the most important findings in areas of special interest to the current debate. The briefs start with short general overviews of a given theme, which are followed by a presentation of country-specific contexts, specific policy challenges, implemented reforms and a discussion of other policy options.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Development of a methodology for expanding the range of territorial statistics (2019–2020)
Duration: July 2019 – May 2020
Research team: Sergejs Gubins (principal investigator), Anna Zasova, Marija Krumina, Anna Pluta
Funded by Central Statistical Bureau of Latvia
Research results were presented by Sergejs Gubins at the seminar “Territorial Statistics and Their Application” (latv. – “Teritoriālā statistika un tās izmantošanas iespējas”) on September 24, 2020.
Merging Latvian EUROMOD with CGE model (2017-2019)
Duration: 2017 – 2019
Research team from BICEPS: Anna Pļuta, Anna Zasova, Oļegs Matvejevs
Research team from the Bank of Latvia: Konstantins Benkovskis and Ludmila Fadejeva
Funded by the Bank of Latvia
Global Entrepreneurship Monitor 2015/2018 publication
Check the latest GEM report, written by Marija Krūmiņa and Anders Paalzow. It covers the results of three sequential years of studies, from 2015 to 2017. GEM is a major international research project aimed at describing and analysing the entrepreneurial process across a wide range of countries. It is our belief that the Latvian GEM will not only contribute to an understanding of the factors influencing entrepreneurship in Latvia but that it will also contribute to an informed debate on Latvian entrepreneurship and the opportunities and challenges it is facing.
Click here to read about the GEM and download the previous GEM reports.
Estimating budget and social costs of psychoactive substance abuse in Latvia (2018)
Project duration: 2018
Research team: Anna Pluta and Anna Zasova
Funded by Latvian Centre for Disease Prevention and Control (latv. – Slimību Profilakses un Kontroles Centrs)
The aim of this report is to provide an estimate of the consolidated general budget and external or non-budget costs of illegal drug use in Latvia for 2017. This is the second time such an estimation is done for Latvia. The first estimation was done in 2010 and covered the costs of drug abuse in 2008 (BICEPS, 2010).
The estimated costs consist of three main components: consolidated general budget costs, foregone budget revenues and non-budget costs. Section 4 of the report deals with consolidated general budget costs. As the initial source for general government budget expenditures on drug-related measures we use labelled expenditures, i.e. expenditures allocated by central and local government to drug-related initiatives, which are reflected in their budgets. In order to calculate labelled expenditures, first we identify the institutions involved in combating drug abuse and illicit trafficking, and then use the budget reports of these institutions or the information received on request on these institutions’ actual expenditure on combating drug abuse and illicit trafficking.
In addition, we estimate non-labelled drug-related expenditures, which are included in the programs with broader objectives and do not appear in the state and local government budgets as separate expenditure items. These expenditures can be identified as related expenditure, such as expenditures encountered by the police, the prosecutor’s office and the courts while investigating crimes related to illegal drug abuse, prisons’ expenditures on supporting people incarcerated for drug-related crimes, probation expenditures on work with people accused of drug-related crimes, expenditures on inpatient and outpatient treatment of drug dependency and associated diseases, expenditures on drug education in schools, and other types of costs.
Total drug-related budget costs in 2017 are estimated to be at least EUR 32.6 mln, or 0.33% of consolidated general budget expenditures. By COFOG classification, the expenditures were mainly concentrated in the fields of public order and safety (70.1%) and health (27.5%). The expenditures on public order and safety mainly consisted of the costs of the State Revenue Service Customs Police Department related to combating illicit drug trafficking, costs related to investigation of drug-related crimes encountered by the police, and costs of supporting persons incarcerated for drug-related crimes encountered by the Latvian Prison Administration. Expenditures on health mainly consisted of expenditures on compensated medicines for the treatment of diseases and infections caused by injecting drugs – HIV / AIDS and viral hepatitis B and C.
When classified by Reuter’s classification, expenditures on law enforcement (70.1%) represent the biggest group. Treatment expenditures accounted for approximately one fifth (21.1%) of total expenditures, but expenditures on prevention and harm reduction accounted for 5.0% and 4.1%, respectively.
Section 7 of the report deals with foregone budget revenues. This component of drug-related costs is generated by problem drug users’ spending on illegal drugs. If this money were spent on legal goods and services, the government could raise extra tax revenues. According to our estimations, drug-related foregone budget revenues amounted to around EUR 2.6 – 3.9 mln. Thus the net budget effect (expenditures plus foregone revenues) of illegal drug use is estimated at EUR 35.2 – 36.4 mln., or 0.13% of GDP.
Finally, Section 8 of the report is devoted to estimation of external or non-budget costs of drug abuse. These costs are due to the fact that problem drug users are more frequently non-employed, they tend to have higher mortality and morbidity risks, they have lower productivity at work and higher absenteeism. Total non-budget costs are estimated at EUR 43.1 – 60.6 mln., or 0.16-0.22% of GDP. The main source of non-budget costs was a low employment rate among the problem drug users.
Total costs of illegal drug use in 2017 amounted to EUR 78.3 – 97.0 mln., or 0.29 – 0.36% of GDP.
The Monograph “Competitiveness of Latvian Enterprises in External Markets”
The monograph “Competitiveness of Latvian Enterprises in External Markets” is a joint work of BICEPS researchers and SSE Riga graduates completed within the State Research Programme SUSTINNO project in the period 2014-2018.
The main objective of the monograph is to better understand the factors that promote exporting of the Latvian enterprises, as well as barriers that firms may face when entering export markets. The monograph consists of two parts. The first part examines similarities and differences between exporters and non-exporters and evaluates factors that affect firms’ propensity to export, with a particular focus on the role of EU fund investments and tax evasion. The second part provides a more general analysis of determinants of efficiency and competitiveness of the Latvian enterprises.