nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2012‒10‒27
five papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Efficiency in a Search and Matching Economy with a Competitive Informal Sector By Charlot, Olivier; Malherbet, Franck; Ulus, Mustafa
  2. Tax Reform in Georgia and the Size of the Shadow Economy By Torosyan, Karine; Filer, Randall K.
  3. Experimental Evidence on the Relationship between Tax Evasion Opportunities and Labor Supply By Doerrenberg, Philipp; Duncan, Denvil
  4. Unequal Inequalities: Do Progressive Taxes Reduce Income Inequality? By Duncan, Denvil; Peter, Klara Sabirianova
  5. Promoting SME development in Indonesia By Annabelle Mourougane

  1. By: Charlot, Olivier (University of Cergy-Pontoise); Malherbet, Franck (University of Rouen); Ulus, Mustafa (Galatasaray University)
    Abstract: We consider a dual labor market with a frictional formal sector and a competitive informal sector. We show that the size of the informal sector is generally too large compared to the optimal allocation of the workers. It follows that our results give a rationale to informality-reducing policies.
    Keywords: search and matching models, informality, efficiency
    JEL: E24 E26 J60 L16 O1
    Date: 2012–10
    URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp6935&r=iue
  2. By: Torosyan, Karine (ISET, Tbilisi State University); Filer, Randall K. (Hunter College/CUNY)
    Abstract: This paper applies three different methods widely used in the literature to track changes in shadow economic activity in Georgia following a drastic tax reform in 2005. The first method is a currency demand approach based on macro level data. The second and third methods rely on micro data from household surveys. Overall, we find evidence that the amount of income underreporting decreased in the years following the reform. The biggest change is observed for households headed by a farmer, followed by "other" types of households where the head does not report any working status. Employed and self-employed households appear very similar before the tax reform and show minimal adjustment in income reporting in the post-reform period. Results, however, suggest that much of any difference may have come from increased enforcement efforts rather than rate changes.
    Keywords: consumer behavior, tax reform, hidden/shadow economy, transition economy
    JEL: E01 H26 J39
    Date: 2012–10
    URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp6912&r=iue
  3. By: Doerrenberg, Philipp (University of Cologne); Duncan, Denvil (Indiana University)
    Abstract: Motivated by the observation that access to evasion opportunities is distributed heterogeneously across the labor market, this paper examines the extent to which labor supply elasticities with respect to tax rates depend on such evasion opportunities. We first discuss the channels through which access to evasion affects labor supply responses and then set up a laboratory experiment in which all participants undertake a real-effort task over several rounds. Subjects face a tax rate, which varies across rounds and are required to pay taxes on earned income. The treatment group is given the opportunity to underreport income while the control group is not. We find that participants in the treatment group have significantly larger effort responses to changes in the net-of-tax rate than participants in the control group; suggesting that both groups indeed react differently to taxes.
    Keywords: lab experiment, taxable income, labor supply, tax evasion, taxes
    JEL: H21 H24 H26 J22
    Date: 2012–10
    URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp6914&r=iue
  4. By: Duncan, Denvil (Indiana University); Peter, Klara Sabirianova (University of North Carolina, Chapel Hill)
    Abstract: This paper analyzes the effect of changes in structural progressivity of national income tax systems on observed and actual income inequality. Using several unique measures of progressivity over the 1981-2005 period for a large panel of countries, we find that progressivity reduces inequality in observed income, but has a significantly smaller impact on actual inequality, approximated by consumption-based GINIs. We show empirically that the differential effect on observed vs. actual inequality is much larger in countries with weaker legal institutions. Substantial differences in inequality response to changes in top vs. bottom rates are also uncovered. The paper discusses implications of these results for flat tax policies.
    Keywords: income inequality, Gini, personal income tax, structural progressivity, tax evasion
    JEL: H2 I3 J3 O1 O2
    Date: 2012–10
    URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp6910&r=iue
  5. By: Annabelle Mourougane
    Abstract: Micro, small and medium-sized firms (MSMEs) are a key source of employment and economic growth in Indonesia. They contributed to the country’s economic resilience during the 2008-09 financial crisis. But many suffer from low productivity, curbing their role in boosting living standards. There are several ways to spur MSME productivity growth over the medium term. The first route would be to encourage the formalisation of small firms. Lessening red tape through simplification of the licensing process and lower tax compliance costs would help. Avoiding excessive rises in the minimum wage in provinces where it is already at a reasonable level would also be important. Looking forward, it would be useful to remove rigidities in the formal labour markets, while moving to some form of unemployment benefit system to insure workers against job-loss risks. The second route would be to boost investment. Clarifying property rights for real estate, and making the information collected by the credit bureau available to all financial institutions would ease access to finance. At the same time, the development of financing alternatives such as venture capital, leasing or micro-finance would enhance credit supply. The poor state of infrastructure, in particular in the transportation and electricity sectors, is also perceived as an important impediment to investment and could be remedied by increasing public infrastructure spending on cost-effective projects. The third route would be to enhance the quality of human resources. The country suffers from a lack of skilled workers, and policies should aim both at increasing the pool of workers and making education and training institutions more responsive to evolving labour-market demand. Indonesia has a long tradition of supporting MSMEs. But responsibilities between the different levels of government and within the central government need to be clarified to minimise overlap and inefficiencies. A rigorous assessment of existing programmes would allow schemes to be consolidated and scarce public funds to be directed to their most cost-effective uses.<P>Promouvoir le développement des PME en Indonésie<BR>Les micro, petites et moyennes entreprises (MPME) sont une source majeure d’emplois et de croissance économique en Indonésie. Elles ont contribué à la résistance de l’économie durant la crise financière de 2008-09. Cependant, beaucoup de ces entreprises souffrent d’une faible productivité, ce qui limite leur rôle dans l’amélioration des niveaux de vie. Il existe plusieurs moyens de stimuler la croissance de la productivité des MPME sur le moyen terme. Le premier moyen serait d’encourager les petites entreprises à s’engager dans l’économie formelle. Il serait utile, à cet effet, de réduire la bureaucratie en simplifiant les procédures d’octroi de licences et d’abaisser les coûts du respect des obligations fiscales. Il serait aussi important d’éviter toute hausse excessive du salaire minimum dans les provinces où il atteint déjà un niveau raisonnable. Dans le future, il conviendrait de réduire les rigidités sur le marché du travail formel, tout en adoptant une forme de système d’indemnisation du chômage afin d’assurer les travailleurs contre le risque de perte d’emploi. Le deuxième moyen serait de stimuler l’investissement. La clarification des droits de propriété immobilière, et la mise à la disposition des informations recueillies par le bureau du crédit à toutes les institutions financières faciliteraient l’accès aux financements. En même temps, le développement d’autres solutions de financement telles que le capital-risque, le crédit-bail ou le microcrédit renforcerait l’offre de crédit. Le mauvais état des infrastructures, en particulier dans les secteurs des transports et de l’électricité, est aussi perçu comme un obstacle à l’investissement, auquel il serait possible de remédier en accroissant les dépenses publiques pour financer des projets d’infrastructure rentables. Le troisième moyen serait de rehausser la qualité des ressources humaines. Le pays souffre d’une pénurie de travailleurs qualifiés, et il faudrait mettre en oeuvre des politiques visant à accroître le nombre de travailleurs disponibles et à rendre les établissements d’enseignement et de formation plus réactifs à l’évolution de la demande sur le marché du travail. L’Indonésie a depuis de longues années une politique de soutien aux MPME. Il est cependant nécessaire de clarifier les responsabilités entre les différents niveaux d’administration et au sein de l’administration centrale afin de réduire au minimum les doubles emplois et l’inefficience. Une évaluation rigoureuse des programmes existants permettrait de consolider les dispositifs en place et d’allouer les maigres ressources publiques à leurs usages les plus rentables. Ce Document de travail se rapporte à l’Étude économique de l’OCDE de l’Indonésie 2012 (www.oecd.org/eco/etudes/Indonésie).
    Keywords: productivity, Indonesia, micro and small firms, productivité, Indonésie, micro et petites entreprises
    JEL: G1 I2 J3 O4
    Date: 2012–10–17
    URL: http://d.repec.org/n?u=RePEc:oec:ecoaaa:995-en&r=iue

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