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on Informal and Underground Economics |
| By: | Paz, Lourenco |
| Abstract: | Several developing countries that underwent trade liberalization experienced changes 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, they also account for more than 30% of the workforce in some countries. In this paper, I develop a theoretical model of the impacts of trade liberalization on labor markets in which domestic and foreign import tariffs affect firms’ payroll tax compliance decisions, which in turn determine the types of jobs (i.e., formal or informal) created. The model is able to replicate several stylized facts such as some small firms hiring formal and informal workers and large firms hiring only formal workers. Moreover, it predicts that a decrease in domestic import tariffs decreases both the share of informal workers and the average formal wage, whereas a decrease in foreign (i.e., trading partner) import tariffs decreases the informality share but increases the average formal wage. The effect on the average informal wage is ambiguous. |
| Keywords: | informal labor markets; trade liberalization; payroll tax evasion |
| JEL: | F16 O17 F12 H26 |
| Date: | 2012–05–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:39545&r=iue |
| By: | Paul Castillo; Carlos Montoro |
| Abstract: | In this paper we analyse the effects of informal labour markets on the dynamics of inflation and on the transmission of aggregate demand and supply shocks. In doing so, we incorporate the informal sector in a modified New Keynesian model with labour market frictions as in the Diamond-Mortensen-Pissarides model. Our main results show that the informal economy generates a "buffer" effect that diminishes the pressure of demand shocks on inflation. This finding is consistent with the empirical literature on the effects of informal labour markets in business cycle fluctuations. This result implies that, in economies with large informal labour markets, changes in interest rates are more effective in stimulating real output and there is less impact on inflation. Furthermore, the model produces cyclical flows from informal to formal employment, consistent with the data. |
| Keywords: | Monetary Policy, New Keynesian Model, Informal Economy, Labour Market Frictions |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:372&r=iue |
| By: | Bargain, Olivier (University of Aix-Marseille II); El Badaoui, Eliane (University Paris Ouest-Nanterre); Kwenda, Prudence (University College Dublin); Strobl, Eric (Ecole Polytechnique, Paris); Walsh, Frank (University College Dublin) |
| Abstract: | We develop a model where formal sector firms pay tax and informal ones do not, but informal firms risk incurring the penalty associated with non-compliance. Workers may enter self-employment or search for jobs as employees. Workers with higher managerial skills will run larger firms while workers with lower will manage smaller firms and will be in self-employment only when they cannot find a salary job. For these workers self-employment is a secondary/informal form of employment. The Burdett and Mortensen (1998) equilibrium search model turns out to be a special case that we amend by incorporating taxes and a penalty for non-payment of taxes. Our model is also consistent with some of the empirical literature in that the informal wage penalty does appear to be limited to low wage/skill workers while firm size is an important determinant of the employee formal sector premium. We test theoretical predictions using empirical evidence from Mexico and find that firm size wage effects for employees and self-employed workers are broadly consistent with the model. |
| Keywords: | informality, self-employment, Burdett and Mortensen model |
| JEL: | J31 O17 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6604&r=iue |
| By: | Santiago Garganta (CONICET y CEDLAS (UNLP)); Leonardo Gasparini (CEDLAS (UNLP)) |
| Abstract: | El programa de Asignación Universal por Hijo en Argentina extiende a los desocupados y trabajadores informales un beneficio antes limitado a los empleados formales. Esta extensión podría modificar los incentivos laborales, estimulando una menor participación en el sector formal respecto de la que hubiese surgido en ausencia del programa. En este trabajo estimamos ese efecto comparando en el tiempo al grupo de hogares elegibles (informales, con hijos), con un grupo semejante pero no elegible (sin hijos). Los resultados sugieren un significativo desincentivo hacia la formalización de los beneficiarios, pero no hay evidencia de un incentivo hacia la informalidad de los trabajadores registrados. |
| Keywords: | Informalidad, protección social, AUH, Argentina |
| JEL: | H55 I38 O17 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:dls:wpaper:0133&r=iue |
| By: | Santiago Garganta (CONICET y CEDLAS (UNLP)); Leonardo Gasparini (CEDLAS (UNLP)) |
| Abstract: | El programa de Asignación Universal por Hijo en Argentina extiende a los desocupados y trabajadores informales un beneficio antes limitado a los empleados formales. Esta extensión podría modificar los incentivos laborales, estimulando una menor participación en el sector formal respecto de la que hubiese surgido en ausencia del programa. En este trabajo estimamos ese efecto comparando en el tiempo al grupo de hogares elegibles (informales, con hijos), con un grupo semejante pero no elegible (sin hijos). Los resultados sugieren un significativo desincentivo hacia la formalización de los beneficiarios, pero no hay evidencia de un incentivo hacia la informalidad de los trabajadores registrados. |
| Keywords: | Informalidad, protección social, AUH, Argentina |
| JEL: | H55 I38 O17 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:dls:wpaper:0134&r=iue |
| By: | Zsombor Z. Méder (Maastricht University, Department of Economics, The Netherlands); András Simonovits; János Vincze |
| Abstract: | We study a family of models of tax evasion, where a flat-rate tax finances only the provision of public goods, neglecting audits and wage differences. We focus on the comparison of two modeling approaches. The first is based on optimizing agents, who are endowed with social preferences, their utility being the sum of private consumption and moral utility. The second approach involves agents acting according to simple heuristics. We find that while we encounter the traditionally shaped Laffer-curve in the optimizing model, the heuristics models exhibit (linearly) increasing Laffer-curves. This difference is related to a peculiar type of behavior emerging within the heuristics based approach: a number of agents lurk in a moral state of limbo, alternating between altruism and selfishness. |
| Keywords: | tax evasion, tax morale, agent-based simulation |
| JEL: | H26 |
| Date: | 2012–06–08 |
| URL: | http://d.repec.org/n?u=RePEc:mkg:wpaper:1202&r=iue |
| By: | Benno Torgler (QUT) |
| Abstract: | Field experiments in the area of tax compliance are rare. This field experiment generates a unique data set with respect to individuals’ under-declaration of income and wealth and over-deductions of tax credits by obtaining exclusive full access to the audits. Using this commune level data from Switzerland, the paper explores the influence of moral suasion on tax compliance. Moral suasion was introduced through a treatment in which taxpayers received a letter signed by the commune’s fiscal commissioner containing normative appeals. Interestingly, I observe differences between under-declaration and over-deductions. Moreover, the overall finding is in line with former results that moral suasion has hardly any effect on taxpayers’ compliance. |
| Keywords: | tax compliance, moral suasion, field experiment |
| JEL: | H26 H71 |
| Date: | 2012–06–05 |
| URL: | http://d.repec.org/n?u=RePEc:qut:dpaper:285&r=iue |
| By: | Jellal , Mohamed |
| Abstract: | In this paper, we introduce firm heterogeneity in the context of a model of non-compliance with minimum wage legislation. The introduction of heterogeneity in the ease with which firms can be monitored for non compliance allows us to show that non-compliance will persist in sectors which are relatively difficult to monitor, despite the government implementing non stochastic monitoring. Moreover, we show that the incentive not to comply is an increasing function of the level of the minimum wage and increasing function of the gap between the minimum wage and the competitive wage rate |
| Keywords: | Minimum wage legislation; Employment ; Informal sector in LDCs ; Government Policy |
| JEL: | J8 O17 J3 K31 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:39499&r=iue |
| By: | Iskandar, Deden Dinar; Wuenscher, Tobias |
| Abstract: | The degradation of environmental quality has been one of the main concerns in Indonesia. The government has mentioned the environmental tax as the instrument of environmental management; however, the primary potential problem will be the issue of compliance. Inspired by the situation in Indonesia, this study is expected to contribute on environmental regulation and tax compliance literatures by examining and comparing the impact of bribery, financial reward, and religious attitude on compliance in a developing country where the bribery prevails. The study employs laboratory experiment approach. The results indicate that bribery has the strongest impact; the presence of bribery significantly worsens the compliance. Financial reward enhances the compliance only if the bribery is curbed, while religious attitude has no significant impact. |
| Keywords: | Environmental tax, compliance, laboratory experiment, Environmental Economics and Policy, Public Economics, |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aare12:124316&r=iue |
| By: | Abmann, Christian; Henning, Christian H.C.A.; Krampe, Eva |
| Abstract: | This paper empirically investigates the interaction of formal and informal political institutions as well as lobbying in determining the ability of agriculture to avoid taxation or attract government transfers. Based on our theory we identify specic interaction eects between district size and characteristic political as well as demographic framework constellation, that determine two dierent regimes, e.g. an u-shape and an inverse u-shape relation between district size and the level of agricultural protection. Further, our theory implies specic dierent patterns of how these interaction eects impact on agricultural protection levels in developing and industrialized countries. Using time-series-cross-section (TSCS) data, this paper tackles the quantitative assessment of the theoretical implications. We estimate the latent regime of agricultural protection and assess the opposing quantitative relationships. We check our results for robustness concerning dynamic specication issues and latent heterogeneity. Furthermore we gauge the possible endogeneity of institutions via an extended treatment framework. |
| Keywords: | Political Institutions, Political Economy of Agricultural Protectionism, Switch- ing Regimes, Endogeneity of political Institutions, Environmental Economics and Policy, |
| Date: | 2012–08–12 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea12:124885&r=iue |
| By: | Bohn, Sarah (Public Policy Institute of California); Lofstrom, Magnus (Public Policy Institute of California) |
| Abstract: | We analyze the impact of the 2007 Legal Arizona Workers Act (LAWA) on employment outcomes of low-skilled Arizona workers, with a focus on the states' unauthorized population. The intent of LAWA was to limit unauthorized workers' economic opportunities as a way to deter further illegal immigration and as such is likely to increase poverty among an already marginalized population. Specifically, we assess whether the legislation reduced the formal employment opportunities of the targeted population. We also look for evidence of an unintended consequence of the policy: whether LAWA pushed workers into informal employment, and if so what are the likely consequences for these workers and their families. Using the synthetic control method developed by Abadie, Diamond and Hainmueller (2010), we find no statistically significant pre-post LAWA differences in wage and salary employment rate for the vast majority of workers in Arizona. Only among the workers most likely to be unauthorized – non-citizen Hispanic men with at most a high school education – do we observe a statistically significant relative decline in the probability of wage and salary employment. We also identify a substantial and statistically significant relative increase in the rate of self-employment among the same group of likely unauthorized workers, and not among other groups. Our data suggests that this shift is likely associated with an increase in poverty among unauthorized immigrants. |
| Keywords: | illegal, unauthorized, undocumented, immigration, Hispanic, Arizona |
| JEL: | J8 J11 J15 J18 J48 J61 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6598&r=iue |
| By: | Eichhorst, Werner (IZA) |
| Abstract: | Most Continental European labour markets and welfare states underwent a substantial transformation over the last two decades moving from a situation of low employment and limited labour market inequality to higher employment, but also more inequality. Germany is a case in point as it exhibits growing employment figures and growing shares of low pay and non-standard work. Furthermore, the German labour market has been remarkably resilient during the recent crisis. How can this be explained? The paper claims that changes in labour market institutions such as unemployment benefits, active labour market policies and employment protection play a major role, but changes in industrial relations at the sectoral level and individual firms' staffing practices are equally important in explaining actual labour market outcomes. Regarding labour market institutions, the pattern found in Germany shows sequences of de- and re-regulatory reforms of employment protection and increasing or decreasing unemployment benefit generosity, both mostly addressing the margins of the labour market, i.e. 'outsiders', and contributing to a growing dualisation of the employment system. The institutional status of 'insiders' was hardly affected by legislative changes. This dualisation trend was reinforced by micro-level dynamics in industrial relations and company employment practices where we can observe growing reliance on mechanisms of internal flexibility for the skilled core work force and increasing use of non-standard types of employment in less specifically skilled occupations. |
| Keywords: | Germany, employment growth, labor market reforms, dualisation, flexibility |
| JEL: | J21 J31 J52 J68 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6625&r=iue |