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on Informal and Underground Economics |
| By: | Mariano Bosch (Inter-American Development Bank); Julen Esteban-Pretel (National Graduate Institute for Policy Studies) |
| Abstract: | Unemployment benefit systems are non-existent in many developing economies. Introducing such programs in these economies poses many challenges, which is partly due to the high level of informality in their labor markets. In this paper we study the consequences on the labor market of implementing an unemployment benefit system in economies with large informal sectors and high flows of workers between formality and informality. We build a search and matching model with endogenous destruction, on-the-job search and inter-sectoral flows, where agents in the economy decide optimally whether or not to formalize jobs. We calibrate the model for Mexico and show that the introduction of an unemployment subsidy system, where workers contribute during formal employment and collect benefits when they lose the job, can deliver an increase in formality in the economy while also producing small increases in unemployment. The exact impact of incorporating such benefits depends on the relative strength of two opposing effects: the generosity of the benefits and the level of the contributions that finance those benefits. We also show important policy complementarities with other interventions in the labor market. In particular, combining the unemployment benefit program with policies that reduce the cost of formality, such as lower firing costs or taxes, can produce decreases in informality and lower impacts on unemployment than when the subsidy program is applied in isolation. |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:ngi:dpaper:12-20&r=iue |
| By: | Nestor Gandelman; Alejandro Rasteletti |
| Abstract: | This paper explores whether the extent of informality in a sector affects a firm's investment decision directly or indirectly through a credit availability channel. The dataset used in the estimation of the econometric models consists of an unbalanced panel of Uruguayan firms for the period 1997-2008. The results suggest that financial restrictions affect investment decisions in Uruguay, as an increase in credit to the private sector translates into higher investment rates. A one percentage point increase in overall credit growth translates into a one half percent increase in investment rates. It is also found that, although there is no direct effect of informality on the firm investment decision, there is an indirect effect through the borrowing channel. More specifically, financial restrictions reduce the amount of investment undertaken by Uruguayan firms, the effect being smaller if the firm operates in a sector with lower informality. |
| JEL: | E26 G21 O16 O4 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:idb:wpaper:idb-wp-392&r=iue |
| By: | Djawadi, Behnud Mir (University of Paderborn); Fahr, René (University of Paderborn) |
| Abstract: | We investigate the impact of trust in authorities on tax compliance within a controlled laboratory setting. Embedded in two hypothetical tax systems with high and low power of authorities respectively, we gradually increase trust in authorities in form of tax knowledge about public expenditures and by allowing taxpayers to decide on what public goods they want their tax dollars to be spend for. To clearly disentangle any effects from factors that are known to influence tax compliance from previous studies, we control for tax commitment, risk attitude, income and effort exerted to earn the income which the taxpayers report truthfully or underreport to the tax authority. Non-parametric statistical analyses as well as multivariate regressions provide clear evidence that tax compliance is higher in tax systems with low power of authorities when providing complete transparency on public expenditures and when taxpayers are given the possibility to decide on the use of their taxes. With a powerful tax authority in place which is reflected in high audit rates, compliance does not change when increasing trust in authorities. Our results have important policy implications as the mere hypothetical possibility to express preferences on budget spending influences tax compliance. |
| Keywords: | tax evasion, tax compliance, tax knowledge, budget spending, real effort, experimental economics |
| JEL: | H26 C91 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7255&r=iue |
| By: | Jarkko Harju; Tuomas Matikka |
| Abstract: | This study examines the extent of direct tax avoidance through income-shifting between wages and dividends, and approximates the deadweight loss due to this behavior for the owners of privately held corporations. The dual income tax system in Finland offers noticeable incentives for income-shifting. The extensive dividend tax reform of 2005 enables us to study how this particular form of tax avoidance reacts to an exogenous change in tax rates. Our results support highly active income-shifting, and the apparent tax avoidance behavior has considerable welfare effects. We also find evidence that costs related to income-shifting behavior affect the effectiveness of taxation. |
| Keywords: | Tax avoidance, income shifting, entrepreneurs, dual income tax |
| JEL: | H32 H21 H25 |
| Date: | 2013–01–14 |
| URL: | http://d.repec.org/n?u=RePEc:fer:wpaper:43&r=iue |
| By: | Yuji Tamura |
| Abstract: | This study contributes to the small theoretical literature on human smuggling by assuming for the first time asymmetric information in analysis. The assumption raises the possibility of an adverse selection equilibrium where only exploitative smugglers are employed at a low fee even though migrants are willing to pay nonexploitative smugglers a high fee. More importantly, I find that improved inland apprehension of migrants may increase the incidence of migrant exploitation while failing to decrease smuggling attempts. Furthermore, improved border apprehension of migrants and smugglers may not affect the market at all. |
| Keywords: | illegal migration, people smuggling, migrant exploitation, human trafficking, adverse selection |
| JEL: | F22 J68 D82 L15 K42 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:acb:cbeeco:2013-605&r=iue |
| By: | Chakraborty, M. |
| Abstract: | In recent time Delhi has revealed its ambitions as a global city. The consequent need for cheap, casual, migrant labour for maintaining its world-scale ambitions has been highlighted in a lot of literature, particularly in the post Commonwealth Games (CWG) period. The migrant labourers in the informal economy of Delhi are seen as oppressed, particularly if they belong to a subordinated social group, like the Muslim male migrants. However, there is need to examine the homogenization implied by ‘Muslim male migrants’. This research aims to challenge the one-dimensional depiction of Muslim male migrants as ‘victims’. Analysing the narratives of two groups of Muslim migrant men in a South Delhi neighbourhood, this research tries to critically look at stable markers of identity such as ethnicity, gender and class. The research reveals identities as fluid, multiple and relational. The men emerge as complex subjects—not just passive ‘victims’ but capable of asserting agency, often through the strategic mobilisation of their multiple identities. |
| Keywords: | ethnicity;men;migrants;multiple identities;Afghan migrants;Bengali migrants;Delhi;Delhi Master Plan 2021;Muslim men;Right to the City;feminist methodology;informal economy;masculinities;rickshaw-pullers;urban citizenship |
| Date: | 2013–02–28 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:euriss:552&r=iue |