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on Informal and Underground Economics |
| By: | Tansel, Aysit (Middle East Technical University); Kan, Elif Oznur (Cankaya University) |
| Abstract: | In this study, we examine the formal/informal sector earnings differentials in the Turkish labor market using detailed econometric methodologies and a novel panel data set drawn from the 2006-2009 Income and Living Conditions Survey (SILC). In particular, we test if there is evidence of traditional segmented labor markets theory which postulates that informal workers are typically subject to lower remuneration than similar workers in the formal sector. Estimation of standard Mincer earnings equations at the mean using OLS on a pooled sample of workers confirms the existence of an informal penalty, but also shows that almost half of this penalty can be explained by observable variables. Along wage/self-employment divide, our results are in line with the traditional theory that formal-salaried workers are paid significantly higher than their informal counterparts. Confirming the heterogeneity within informal employment, we find that self-employed are often subject to lower remuneration compared to those who are salaried. Moreover, using quantile regression estimations, we show that pay differentials are not uniform along the earnings distribution. More specifically, we find that informal penalty decreases with the earnings level, implying a heterogeneous informal sector with upper-tier jobs carrying a significant premium and lower-tier jobs being largely penalized. Finally, fixed effects estimation of the earnings gap depict that unobserved individual fixed effects when combined with controls for observable individual and employment characteristics explain the pay differentials between formal and informal employment entirely, thereby implying that formal/informal segmentation may not be a stylized fact of the Turkish labor market as previously thought. |
| Keywords: | formal/informal employment, labor market dynamics, panel data, Turkey, earnings gap |
| JEL: | J21 J31 J40 O17 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6556&r=iue |
| By: | Aysit Tansel (Middle East Technical University); Elif Oznur Kan (Cankaya Universityy) |
| Abstract: | In this study, we examine the formal/informal sector earnings differentials in the Turkish labor market using detailed econometric ethodologies and a novel panel data set drawn from the 2006-2009 Income and Living Conditions Survey (SILC). In particular, we test if there is evidence of traditional segmented labor markets theory which postulates that informal workers are typically subject to lower remuneration than similar workers in the formal sector. Estimation of standard Mincer earnings equations at the mean using OLS on a pooled sample of workers confirms the existence of an informal penalty, but also shows that almost half of this penalty can be explained by observable variables. Along wage/self-employment divide, our results are in line with the traditional theory that formal-salaried workers are paid significantly higher than their informal counterparts. Confirming the heterogeneity within informal employment, we find that self-employed are often subject to lower remuneration compared to those who are salaried. Moreover, using quantile regression estimations, we show that pay differentials are not uniform along the earnings distribution. More specifically, we find that informal penalty decreases with the earnings level, implying a heterogeneous informal sector with upper-tier jobs carrying a significant premium and lower-tier jobs being largely penalized. Finally, fixed effects estimation of the earnings gap depict that unobserved individual fixed effects when combined with controls for observable individual and employment characteristics explain the pay differentials between formal and informal employment entirely, thereby implying that formal/informal segmentation may not be a stylized fact of the Turkish labor market as previously thought. |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:1210&r=iue |
| By: | Badi H. Baltagi; Yusuf Soner Baskaya; Timur Hulagu |
| Abstract: | This paper presents wage curves for formal and informal workers using a rich individual level data for Turkey over the period 2005-2009. The wage curve is an empirical regularity describing a negative relationship between regional unemployment rates and individuals' real wages. While this relationship has been well documented for a number of countries including Turkey, less attention has focused on how this relationship differs for informal versus formal employment. This is of utmost importance for less developed countries where informal employment plays a signifcant role in the economy. Using the Turkish Household Labor Force Survey observed over 26 NUTS-2 regions, we find that real hourly wages of informal workers in Turkey are more sensitive to variations in regional unemployment rates than wages of formal workers. This is true for all workers as well as for different gender and age groups. |
| Keywords: | Formal/Informal Employment, Wage Curve, Regional Labor Markets |
| JEL: | C26 J30 J60 O17 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:1216&r=iue |
| By: | Paz, Lourenco |
| Abstract: | Several developing countries that underwent trade liberalization experienced an increase in the share of informal workers in manufacturing industries. This phenomenon deserves careful examination because informal jobs are not only generally viewed as low-quality and low-paying jobs, but they also account for more than 30% of the workforce in some countries. In this paper, I examine the effects of the Brazilian trade liberalization episode (1989-2001) on the industry-level share of informal workers and on the average formal and informal wages. I find that a percentage point decrease in import tariffs increases the informality share by 0.09 percentage points and the average informal wage by 0.06%, and decreases the average formal wage by 0.05%. A similar change in foreign import tariffs decreases the informality share by 0.17 percentage points and the average informal wage by 0.34%, and increases the average formal wage by 0.32%. The results are found to be robust to endogeneity and self-selection concerns, which are addressed using instrumental variables and a switching regressions approach. |
| Keywords: | informal labor markets; trade liberalization; Brazil |
| JEL: | F16 O17 F12 H26 |
| Date: | 2012–03–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:38858&r=iue |
| By: | Chaudhuri, Sarbajit; Bandopadhyay, Titas Kumar |
| Abstract: | The purpose of this paper is to extend the Fields’ (1989) multi sector job-search model in a three sector general equilibrium framework by introducing international trade and an input, capital. The three sectors are the rural sector, the urban informal sector and the urban formal sector. The rural sector and the urban informal sector use one type of mobile capital while the urban formal sector uses sector-specific another type of capital. We find that the effects of the inflow of foreign capital in the urban formal sector on unemployment and social welfare crucially hinge on the relative factor intensities of the rural and the urban informal sectors. We show that there is a possibility of a trade-off between the government’s twin objectives of improvement in social welfare and mitigation of the urban unemployment problem. These results are extremely crucial from the view of policymaking in an unemployment plagued, low-income developing economy. |
| Keywords: | Job search; foreign capital; unemployment; ex-post labour; ex-ante labour; general equilibrium |
| JEL: | J10 F11 J21 I28 |
| Date: | 2012–05–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:38921&r=iue |
| By: | McKee, Michael; Siladke, Caleb; Vossler, Christian A. |
| Abstract: | Tax authorities utilize the audit process, imposing penalties on tax evaders, as their primary means of enforcement. In recent years, a “service” paradigm, whereby tax authorities provide information about correct tax reporting to taxpayers, has shown the potential to further “encourage” correct tax reporting. This research utilizes laboratory experiments to investigate the behavioral dynamics pertaining to information acquisition and tax evasion. The results show that the overall effect of a helpful information service is to decrease tax evasion. Further, an audit has the behavioral effect of lowering information acquisition rates and increasing evasion immediately after experiencing a penalty. This effect persists (although diminishes) in subsequent tax reporting decisions. |
| Keywords: | Tax evasion; Tax compliance; Behavioral Dynamics; Behavioral economics; Experimental economics |
| JEL: | C91 H26 |
| Date: | 2011–12–23 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:38865&r=iue |
| By: | Jonathan Goyette (Department of Economics and GRÉDI, Université de Sherbrooke) |
| Abstract: | Significant efficiency gains are available when there is a gap between official and effective enforcement of a tax threshold. Using a unique dataset on Ugandan firms, I show that audits for business-related taxes are effectively based on the number of employees rather than the official tax threshold, which is in terms of sales. Based on the empirical evidence, I build a model of firms growth with entry and exit. Entrepreneurs evade part of their tax liabilities and, when audited, bargain with tax officials to keep some of the surplus from evasion in exchange of a bribe. The model is calibrated using the Ugandan data and replicates well some features of the data that are not explicitly targeted. Based on a counterfactual analysis, I show that the efficiency loss associated with evasion and corruption is of the order of 45% in Uganda. There is also a non-negligible gain in productivity per worker of 16% from enforcing the official tax threshold based on the level of sales rather than the effective threshold based on the number of employees. This gain in efficiency is essentially due to the reallocation of labor across productive units. |
| Keywords: | Tax Threshold, Evasion, Corruption, Firm’s Growth, Size Distribution of Firms, Simulation |
| JEL: | E27 H26 H83 L11 O11 O16 O43 O47 |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:shr:wpaper:12-07&r=iue |
| By: | Vossler, Christian A.; McKee, Michael; Jones, Michael |
| Abstract: | As an alternative to analyzing field data, our research utilizes controlled laboratory experiments with human decision makers and salient financial incentives. Within the laboratory, we determine (hence, know) the true tax liability, and then identify the effects of information services by systematically varying the setting across groups of players. In particular, our experimental design varies the degree of accessibility and accuracy of information services. Our design allows us to observe both the tax reporting behavior as well as the propensity of the taxpayer to obtain information by making information acquisition a (sometimes costly) choice. |
| Keywords: | tax evasion; laboratory experiments |
| JEL: | D8 C91 H26 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:38870&r=iue |
| By: | Simplice A, Asongu |
| Abstract: | Purpose: We make available new critical macroeconomic financial indicators to the research community. Nothing is more powerful than a phenomenon whose time has come. What is the macroeconomic empirical context of growing mobile banking? Perhaps one of the deepest empirical hollows in the financial development literature has been the equation of financial depth in the perspective of money supply to liquid liabilities. This equation has put on the margin, a burgeoning phenomenon whose time has come: mobile banking. Design/Methodology: We decompose financial depth into formal, semi-formal and informal sectors and then assess the incidence of mobile banking on each constituent. Thus the IFS (2008) definition of the financial system is extended to incorporate an informal financial sector in line with Asongu(2011). Three hypotheses based on eight propositions are tested using a plethora of endogeneity-robust and HAC standard errors estimation techniques. Findings: The informal financial sector (a previously missing component in the definition of money supply: M2) is positively affected by mobile banking, while the incidence of mobile banking is negative on formal and semi-formal financial intermediary development. The paper contributes at the same time to the macroeconomic literature on measuring financial development and responds to the growing field of economic development by means of informal financial sector promotion, microfinance and mobile banking. It suggests a practicable way to disentangle the effects of mobile banking on various financial sectors. Research implications: Since empirical research on the phenomenon has been hampered by lack of data, we make available macroeconomic financial indicators to the research community. The present paper is also in response to the numerous calls on the research gap in the literature that emphasize the need for research on mobile banking. The mobile-finance nexus is gaining momentum, yet relatively little scholarly research explores the incidence of these m-banking/m-payment (systems) on financial development. Practical implications: (1) There is a burgeoning role of informal finance in developing countries. (2) The incidence of the growing phenomenon of mobile banking cannot be effectively assessed at a macroeconomic level by traditional financial development indicators. (3) It is a wake-up call for scholarly research on informal financial intermediary development indicators which will guide monetary policy; since a great chunk of the monetary base (M0) in less developed countries is now captured by mobile banking. Originality/value: New financial indicators for mobile banking assessment based on insufficiencies in the financial development literature: liquid liabilities as applied to developing countries is misleading because a great chunk of the monetary base does not transit through the banking system but via informal networks like the growing phenomenon of mobile banking. |
| Keywords: | Banking; Mobile Phones; Shadow Economy; Financial Development; Africa |
| JEL: | O17 O33 E00 D60 G20 |
| Date: | 2012–05–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:38575&r=iue |
| By: | Niels Johannesen (Department of Economics - University of Copenhagen - University of Copenhagen); Gabriel Zucman (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris) |
| Abstract: | During the financial crisis, G20 countries compelled tax havens to sign bilateral treaties providing for exchange of bank information. Is it the end of bank secrecy? Exploiting a unique panel dataset, we study how the treaties affected bank deposits in tax havens. Our results suggest that most tax evaders did not respond to the treaties but that a minority responded by transferring their deposits to havens not covered by a treaty. Overall, the G20 tax haven crackdown caused a modest relocation of deposits between havens but no significant repatriation of funds: the era of bank secrecy is not yet over. |
| Keywords: | Tax havens ; Tax evasion |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00665054&r=iue |
| By: | Jean-Paul Azam (Institut d’économie industrielle, Université de Toulouse 1); Bernard Gauthier (Institut d’économie appliquée, HEC Montréal); Jonathan Goyette (Department of Economics and GRÉDI, Université de Sherbrooke) |
| Abstract: | The paper investigates the conflict that arises between the government, its bureaucrats and businesses in the tax collection process. We examine the effect of fiscal policy and corruption control mechanisms on the prevalence of tax evasion and corruption behaviour, and their impact on firm growth and social welfare. We first model a situation where bureaucrats are homogeneous and have complete bargaining power over firms in the negotiation of bribes during the tax collection process. In such a situation, the government can choose an optimal policy that involves the joint determination of a tax rate and a probability of detection of corrupt bureaucrats which leads to a no-corruption equilibrium. However, when the public administration is composed of bureaucrats with heterogeneous types defined by their ability to impose red tape costs on firms, we find that it is optimal to allow a certain level of corruption, given the cost of monitoring activities. We show how a government could face lose-lose as well as win-win situations in the conduct of its fiscal policies. |
| Keywords: | Corruption, Tax evasion, Tax administration |
| JEL: | D73 H21 H26 H32 D82 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:shr:wpaper:12-09&r=iue |
| By: | Jean-Paul Azam (Institut d’économie industrielle, Université de Toulouse 1); Bernard Gauthier (Institut d’économie appliquée, HEC Montréal); Jonathan Goyette (Department of Economics and GRÉDI, Université de Sherbrooke) |
| Abstract: | This paper investigates the negotiation over bribe and tax payments during the tax collection process in poor countries. We build a simple model where tax officials and firms bargain over bribes to let firms evade part of their taxes. Using a unique dataset on Ugandan firms we test the predictions of the model. We find significant and robust effects of effective tax payments, tax obligations, red tape costs and firm’s bargaining power on bribe payments. Taking into account the endogenous relationship between taxes paid and bribes, we find a significant and negative relationship between these two variables. A policy that would increase incentives to pay taxes per employee by 7% could at the same time decrease the level of bribes per employee by at least 1%. |
| Keywords: | Corruption, Tax evasion, Tax administration, Red Tape, Bargaining Power |
| JEL: | D73 H21 H26 H32 D82 |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:shr:wpaper:12-08&r=iue |
| By: | Catherine Pollak (IRDES institut for research and information in health economics); Nicolas Sirven (IRDES institut for research and information in health economics) |
| Abstract: | “Active Ageing” strategies aim to foster the participation of seniors in the society. Although economic literature has extensively studied the incentives for seniors to increase their labour supply, little is known about the motivations for older people to complement labour with other forms of social participation. Using data from the Survey of Health, Ageing and Retirement in Europe, this article provides empirical evidence of the motivational role of the work environment in the supply of formal and informal productive activities of 50 to 65 year old workers. The results show that intrinsic rewards received at work, such as skill development opportunities and decision latitude, form an incentive for older workers to invest time in social activities outside the labour market. Extrinsic rewards on the other hand, like advancement perspectives, job security and pay, appear independent from non-market outcomes. Therefore, the opportunity for work time arrangements but also intrinsic rewards in the work environment should be developed if one aims to foster participation of older workers in the society. |
| Keywords: | Labour supply, Job quality, Social capital, Informal care. |
| JEL: | J81 J22 J14 C35 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:irh:wpaper:dt48&r=iue |
| By: | Olken, Benjamin A.; Singhal, Monica |
| Abstract: | Informal payments are a frequently overlooked source of local public finance in developing countries. We use microdata from ten countries to establish stylized facts on the magnitude, form, and distributional implications of this "informal taxation." Informal taxation is wide- spread, particularly in rural areas, with substantial in-kind labor payments. The wealthy pay more, but pay less in percentage terms, and informal taxes are more regressive than formal taxes. Failing to include informal taxation underestimates household tax burdens and revenue decentralization in developing countries. We discuss various explanations for and implications of these observed stylized facts. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:hrv:hksfac:5689166&r=iue |
| By: | Auriol, Emmanuelle; Mesnard, Alice |
| Abstract: | We study how smugglers respond to different types of migration policies - legalisation through the sale of migration visas, or more traditional repressive policies through borders' enforcement, employers' sanctions or deportation - by changing the price they propose to illegal migrants. In this context a government that aims at eradicating smugglers and controlling migration flows faces a trade-off. Eliminating smugglers by the sale of visas increases the flows of migrants and may worsen their skill composition. In contrast, repressive policies decrease the flows of illegal migrants and may improve their skill composition but do not eliminate smugglers. We then study how a combination of increased repression -through reinforced external and internal controls- and sale of visas may be effective at eliminating smugglers and controlling migration flows while not weighing on public finances. Simulations allow us to quantify the partial equilibrium effects of the policies under study. |
| Keywords: | legalisation; market structure; migration; migration policies |
| JEL: | F22 I18 L51 O15 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8965&r=iue |
| By: | Samuel Lee; Petra Persson |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ste:nystbu:12-07&r=iue |