Choice Architecture as a Tool to Reduce Underground Economic Activity in the Construction Industry
Date
2023-05-29
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Abstract
I outline how existing enforcement of Canada's tax laws, through audits, is ineffective in addressing the problem of residential construction as the number one contributor to the Canada's underground economy and I compare different potential policy remedies. The construction industry in Canada faces many challenges, including volatility and cash flow issues, which contribute to construction firms' inability to pay taxes in full and on time. The cash flow issues create a situation in which firms become liquidity constrained, establishing a compounding effect as they fall behind on their tax bill from one year to the next. In addition to being the number one contributor to the underground economy, construction businesses are also most likely to become insolvent, forcing them to declare bankruptcy or file a division I proposal. While bankruptcy is the "legal process by which [one] may be discharged from most of [one's] debts" (Canada Revenue Agency 2023c), a Division I proposal is a less severe procedure, which is also "governed by the Bankruptcy and insolvency Act". It involves the debtor meeting with all of their creditors to present to them how much money they would receive in the case of a bankruptcy versus a proposal. The creditors then vote on whether to approve the proposal (Office of the Superintendent of Bankruptcy 2015).
Participation in the underground economy affects all parties - government, taxpayers, and the participants themselves. I will give attention primarily to how the construction industry operates and how this can seemingly force construction businesses into the underground economy despite their intentions. Policy intervention is needed to better collaborate with small business owners and self-employed construction workers to help them stay compliant on taxes while also being able to run their businesses with minimal interruption.
Description
Keywords
Citation
Beaulieu, L. (2023). Choice Architecture as a Tool to Reduce Underground Economic Activity in the Construction Industry (Unpublished master's project). University of Calgary, Calgary, AB.