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on Informal and Underground Economics |
| By: | H. Lehmann; A. Muravyev |
| Abstract: | This paper analyzes, using country-level panel data from transition economies and Latin America, the impact of labor market institutions on informal economic activity. The measure of informal economic activity is taken from Schneider et al. (2010), the most comprehensive study to date. The data on institutions, which cover employment protection legislation (EPL), the tax wedge, the unemployment benefit level, unemployment benefit duration and union density, are assembled at the IZA (transition countries) and the World Bank (LAC countries). We find that a more regulated labor market (higher EPL) increases the size of the informal economy. There is also evidence that a larger tax wedge increases informality. The tax wedge elasticity of informal economy, when evaluated at the sample mean, is rather modest, around 0.1%. Our results are broadly in line with the literature, which identifies labor market regulation and the tax wedge as important drivers of informality. |
| JEL: | E24 J21 J42 O17 P20 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp854&r=iue |
| By: | Pasquier-Doumer, Laure |
| Abstract: | This paper aims at highlighting the debate on firm heterogeneity in the informal sector by testing whether entrepreneurial familial background impacts informal businesses outcomes in the West African context. In the USA, a literature aiming at understanding the high intergenerational correlation of the self-employed status shows that children of self-employed have better business performance than children of wage earners. However, it is not obvious that this result could be generalised to developing countries. Using 1-2-3 surveys collected in the commercial capitals of seven West African countries in 2001–02, this paper shows that children of self-employed, who own an informal business, do not have better business outcomes than children of wage earners, except when they choose a familial tradition in the same sector of activity. Thus, in the West African context, having a self-employed father seems not sufficient for the transmission of valuable skills and does not provide any advantage in terms of value added or sales if the activity is different from that of the father. On the other hand, informal entrepreneurs who have chosen a specific enterprise based on familial tradition have a competitive advantage. Their competitive advantage is partly explained by the transmission of enterprise-specific human capital, acquired through experiences in the same type of activity and by the transmission of social capital that guarantees a better clientele and a reputation. |
| Keywords: | informal sector; Entrepreneurship; Intergenerational link; Human capital; secteur informel; entreprenariat; lien intergénérationnel; capital humain; |
| JEL: | L26 J24 J62 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ner:dauphi:urn:hdl:123456789/7080&r=iue |
| By: | Uwe Dulleck (QUT); Jonas Fooken (QUT); Cameron Newton (QUT); Andrea Ristl; Markus Schaffner (QUT); Benno Torgler (QUT) |
| Abstract: | Although paying taxes is a key element in a well-functioning civilized society, the understanding of why people pay taxes is still limited. What current evidence shows is that, given relatively low audit probabilities and penalties in case of tax evasion, compliance levels are higher than would be predicted by traditional economics-of-crime models. Models emphasizing that taxpayers make strategic, financially motivated compliance decisions, seemingly assume an overly restrictive view of human nature. Law abidance may be more accurately explained by social norms, a concept that has gained growing importance as a facet in better understanding the tax compliance puzzle. This study analyzes the relation between psychic cost arising from breaking social norms and tax compliance using a heart rate variability (HRV) measure that captures the psychobiological or neural equivalents of psychic costs (e.g., feelings of guilt or shame) that may arise from the contemplation of real or imagined actions and produce immediate consequential physiologic discomfort. Specifically, this nonintrusive HRV measurement method obtains information on activity in two branches of the autonomous nervous system (ANS), the excitatory sympathetic nervous system and the inhibitory parasympathetic system. Using time-frequency analysis of the (interpolated) heart rate signal, it identifies the level of activity (power) at different velocities of change (frequencies), whose LF (low frequency) to HF (high frequency band) ratio can be used as an index of sympathovagal balance or psychic stress. Our results, based on a large set of observations in a laboratory setting, provide empirical evidence of a positive correlation between psychic stress and tax compliance and thus underscore the importance of moral sentiment in the tax compliance context. |
| Keywords: | tax compliance, psychic costs, stress, tax morale, cooperation, heart rate variability, biomarkers, experiment |
| JEL: | H26 H41 K42 D31 D63 C91 |
| Date: | 2012–11–07 |
| URL: | http://d.repec.org/n?u=RePEc:qut:qubewp:001&r=iue |
| By: | Sokolovska, Olena; Sokolovskyi, Dmytro |
| Abstract: | The paper examines the tax-tariff reform, recommended for Ukraine by donor organization (IMF and the World Bank), which consists in trade liberalization by way of trade tax cuts with simultaneous compensation of state tax revenue losses by VAT base broadening. We developed the mathematical model of evaluation of crossborder taxation influence on commodity flows, on economic agents’ profits and on state tax revenues, which can be considered as extension of “Devarajan” and “Emran–Stiglitz” models, with regard to possibility of tax evasion and receiving the illegally compensated VAT. The evaluation of model using data bases, prepared by Ukrainian State Statistic Committee and Customs administration of Ukraine, revealed that the expediency to reform a tax-tariff system, according to the IMF recommendations, is not clearly obvious and it depends on tax rates elasticity of size of informal sector. We find that providing the trade liberalization by way of substitution of trade tax revenues by enlarged VAT is expedient in those branches of economy, which are characterized by monopoly and oligopoly situation. |
| Keywords: | trade tax; tax-tariff reform; VAT; informal sector |
| JEL: | F13 C30 H26 |
| Date: | 2011–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:42643&r=iue |
| By: | Ghani, Ejaz; Goswami, Arti Grover; Kerr, William R. |
| Abstract: | This paper investigates the urbanization of the Indian manufacturing sector by combining enterprise data from formal and informal sectors. It finds that plants in the formal sector are moving away from urban and into rural locations, while the informal sector is moving from rural to urban locations. Although the secular trend for India's manufacturing urbanization has slowed down, the localized importance of education and infrastructure has not. The results suggest that districts with better education and infrastructure have experienced a faster pace of urbanization, although higher urban-rural cost ratios cause movement out of urban areas. This process is associated with improvements in the spatial allocation of plants across urban and rural locations. Spatial location of plants has implications for policy on investments in education, infrastructure, and the livability of cities. The high share of urbanization occurring in the informal sector suggests that urbanization policies that contain inclusionary approaches may be more successful in promoting local development and managing its strains than those focused only on the formal sector. Cities are evolving in India from places of goods production to forges of human capital and coping mechanisms for survival. |
| Keywords: | Banks&Banking Reform,National Urban Development Policies&Strategies,Urban Housing and Land Settlements,Population Policies,Urban Slums Upgrading |
| Date: | 2012–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:6271&r=iue |