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on Informal and Underground Economics |
| By: | Kar, Saibal (Centre for Studies in Social Sciences, Calcutta); Marjit, Sugata (Centre for Studies in Social Sciences, Calcutta) |
| Abstract: | We provide an analysis of enforcement policies applicable to formal sector in dual labor markets. We use a framework with heterogeneous firms, endogenous determination of informal wage and politically dictated enforcement strategies. Firms which operate both in the formal and informal sectors do very little to increase employment when faced with the opportunity of hiring workers in the informal labor market. Thus enforcement of labor laws and other regulations should not have aggregate employment effects, particularly when workers are productively homogeneous. For firms operating exclusively in the informal sector, the outcome is different. Such features determine the stringency of enforcement in a market characterized by firms with varying levels of productivity. For example, in case of firms with relatively high levels of productivity, enforcement has to be stricter than in the case with relatively low productivity firms. Taxing the more productive seems to be the optimal strategy. |
| Keywords: | heterogeneous firms, informal labor, wage, labor regulations, enforcement |
| JEL: | J21 J31 J50 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5978&r=iue |
| By: | Clara Delavallade |
| Abstract: | This paper empirically analyzes the main microeconomic determinants of two forms of corruption supply, administrative corruption and state capture, by Maghrebi firms. This study is based on a new database of nearly 600 Algerian, Moroccan and Tunisian firms. I show that tax evasion is a major factor in the engagement of firms in administrative corruption. The latter increases with the share of sales hidden by the firm as long as it is below half of total sales, and slightly decreases thereafter. State capture is fostered by a failing enforcement of property and contract rights. Interestingly, less competitive firms appear to engage more in both forms of corruption than the most dynamic ones. After assessing the robustness of my empirical results, I draw a comparison of the factors of corruption in North Africa, Uganda and transition countries. |
| Keywords: | Supply of Corruption, Administrative Corruption, State Capture, Tax Evasion, Competitiveness, North Africa |
| JEL: | C2 D73 O17 H32 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:243&r=iue |
| By: | Massenot, Baptiste; Straub, Stéphane |
| Abstract: | A standard view holds that removing barriers to entry and improving judicial enforcement would reduce informality and boost investment and growth. We show, however, that this conclusion may not hold in countries with a concentrated bank- ing sector or with low financial openness. When the formal sector becomes larger in those countries, more entrepreneurs become creditworthy and the higher pres- sure in the credit market increases the interest rate. This reduces future capital accumulation. We show some empirical evidence consistent with these predictions. |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:24945&r=iue |
| By: | Aterido, Reyes (World Bank); Hallward-Driemeier, Mary (World Bank); Pagés, Carmen (Inter-American Development Bank) |
| Abstract: | Seguro Popular (SP) was introduced in 2002 to provide health insurance to the 50 million Mexicans without Social Security. This paper tests whether the program has had unintended consequences, distorting workers' incentives to operate in the informal sector. The analysis examines the impact of SP on disaggregated labor market decisions, taking into account that program coverage depends not only on the individual's employment status, but also on that of other household members. The identification strategy relies on the variation in SP's rollout across municipalities and time, with the difference-in-difference estimation controlling for household fixed effects. The paper finds that SP lowers formality by 0.4-0.7 percentage points, with adjustments largely occurring within a few years of the program's introduction. Rather than encouraging exit from the formal sector, SP is associated with a 3.1 percentage point reduction (a 20 percent decline) in the inflow of workers into formality. Income effects are also apparent, with significantly decreased flows out of unemployment and lower labor force participation. The impact is larger for those with less education, in larger households, and with somebody else in the household guaranteeing Social Security coverage. However, workers pay for part of these benefits with lower wages in the informal sector. |
| Keywords: | informality, Seguro Popular, Mexico, non-contributory social programs, social assistance |
| JEL: | J08 J62 I38 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5996&r=iue |
| By: | Joras Ferwerda; Mark Kattenberg; Han-Hsin Chang; Brigitte Unger; Loek Groot; Jakob Bikker |
| Abstract: | Several attempts have been made in the economics literature to measure money laundering. However, the adequacy of these models is difficult to assess, as money laundering takes place secretly and, hence, goes unobserved. An exception is trade-based money laundering (TBML), a special form of trade abuse that has been discovered only recently. TBML refers to criminal proceeds that are transferred around the world using fake invoices that under- or overvalue imports and exports. This article is a first attempt to test well-known prototype models proposed by Walker and Unger to predict illicit money laundering flows and to apply traditional gravity models borrowed from international trade theory. To do so, we use a dataset of Zdanowicz of TBML flows from the US to 199 countries. Our test rejects the specifications of the Walker and Unger prototype models, at least for TBML. The traditional gravity model that we present here can indeed explain TBML flows worldwide in a plausible manner. An important determinant is licit trade, the mass in which TBML is hidden. Furthermore, our results suggest that criminals use TBML in order to escape the stricter anti moneylaundering regulations of financial markets. |
| Keywords: | Money laundering; international trade; gravity model; Walker model |
| JEL: | C21 F10 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:318&r=iue |
| By: | Michel Beine; Elisabetta Lodigiani; Robert Vermeulen |
| Abstract: | Migrant remittances increased strongly since the 1980s, becoming an important and reliable source of funds for many developing countries. Therefore, there is a strong incentive for receiving countries to attract more remittances, especially through formal channels that turn to be either less expensive and/or less risky than informal ones. One way of doing so is to increase their country’s financial openness, but this policy option might also generate additional costs in terms of macroeconomic volatility. In this paper we investigate the link between remittance receipts and financial openness. We develop a small model and statistically test for the existence of such a relationship with a sample of 66 mostly developing countries from 1980-2005. Empirically we use a dynamic generalized ordered logit model to deal with the categorical nature of the financial openness policy. We apply a two-step method akin to two stage least squares to deal with the endogeneity of remittances and potential measurement errors. We find a strong positive statistical and economic effect of remittances on financial openness. |
| Keywords: | remittances; financial openness; government policy |
| JEL: | E60 F24 F41 O10 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:317&r=iue |
| By: | Thomas Bossuroy |
| Abstract: | This paper examines the individual determinants of ethnic identication using large sample surveys (about 30,000 respondents) representative of seven capitals of West-African countries. A small model that relates ethnic identication to an investment in ethnic capital suggests that individuals initially deprived of social or human capital resort to ethnicity to get socially inserted, and do even more so if their ethnic group itself is well inserted. Empirical results are consistent with this simple theory. First, education lowers ethnic salience. Second, ethnic identication is higher for uneducated unemployed or informal workers who seek a new or better job, and is further raised by the share of the individual's ethnic group integrated on the job market. Third, ethnic identication is higher among migrants, and raised by the share of the migrant's ethnic group that is employed. Group solidarity makes ethnic identity more salient for individuals deprived of other means for upward mobility. |
| Keywords: | Ethnicity, Identity, Social capital, Networks, Africa |
| JEL: | A13 A14 D74 O17 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:242&r=iue |