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on Informal and Underground Economics |
| By: | Bachas, Pierre (World Bank Research); Gadenne, Lucie (University of Warwick, Institute for Fiscal Studies and CEPR); Jensen, Anders (Harvard Kennedy School and NBER) |
| Abstract: | Can consumption taxes reduce inequality in developing countries? We combine household expenditure data from 31 countries with theory to shed new light on the redistributive potential and optimal design of consumption taxes. We use the type of store in which purchases occur to proxy for informal (untaxed) consumption. This enables us to characterize the informality Engel curve: we find that the budget share spent in the informal sector steeply declines with income, in all countries. The informal sector thus makes consumption taxes progressive: households in the richest quintile face an effective tax rate that is twice that of the poorest quintile. We extend the standard optimal commodity tax model to allow for informal consumption and calibrate it to the data to study the effects of different tax policies on inequality. Contrary to consensus, we show that consumption taxes are redistributive, lowering inequality by as much as personal income taxes. Once informality is taken into account, commonly used redistributive policies, such as reduced tax rates on necessities, have a limited impact on inequality. In particular, subsidizing food cannot be justified on equity or efficiency grounds in several poor countries. |
| Keywords: | Household Budget Surveys ; Inequality ; Informality ; Redistribution ; Taxes JEL codes: E26 ; H21 ; H23 ; 023 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1277&r=all |
| By: | Hugo Jales (Center for Policy Research, Maxwell School, Syracuse University, 426 Eggers Hall, Syracuse, NY 13244); Zhengfei Yu (Faculty of Humanities and Social Sciences, University of Tsukuba) |
| Abstract: | We study the effects of labor market policies using a bargaining model featuring compensating differentials (Rosen, 1986) and self-selection (Roy, 1951). The framework allows us to create a taxonomy of formal and informal employment. We use the model to estimate the effects of the minimum wage for the Brazilian economy using the “PNAD" dataset for the years 2001-2005. Our results suggest that, although the minimum wage generates unemployment and reallocation of labor to the informal sector, the policy might be desirable if the employment losses are concentrated in jobs characterized by low surplus. |
| Keywords: | Self-Selection, Compensating Wage Differentials, Minimum Wage, Informality, Unemployment |
| JEL: | J30 J32 J46 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:max:cprwps:231&r=all |
| By: | Philippe Adair; Hassiba Gherbi |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:eru:erudwp:wp20-06&r=all |
| By: | Asongu, Simplice; Uduji, Joseph; Okolo-Obasi, Elda |
| Abstract: | The central thesis of the paper is that Multinational Companies (MNC) should invest in the use of “soft” methods (socially responsible behavior) to mitigate costs in society accrued due to use of “hardcore” tax evasion tactics (Transfer mispricing) to maximize profits from operations in developing countries and/or countries with weak or inefficient tax laws and tax collection institutions. Therefore, we articulate the argument of Corporate Social Responsibility (CSR) as an indirect compensation for transfer mispricing. Our aim is not to present CSR as solution to transfer mispricing. An analytical approach is based on a content analysis of the existing literature with emphasis on a case study. We first discuss the dark side of transfer pricing (TP), next we present the link between TP and poverty and finally we advance arguments for CSR as a compensation for transfer mispricing. While acknowledging that TP is a legal accounting practice, we argue that in light of its poverty and underdevelopment externalities, the practice per se should be a strong defence for CSR because it is also associated with schemes that deprive developing countries of the capital essential for investment in health, education and development programmes. |
| Keywords: | Corporate Social Responsibility; Transfer pricing; Extreme poverty |
| JEL: | F20 H20 M14 O11 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:101097&r=all |
| By: | Corinne Deléchat; Lama Kiyasseh; Margaux MacDonald; Rui Xu |
| Abstract: | This study analyzes the drivers of the use of formal vs. informal financial services in emerging and developing countries using the 2017 Global FINDEX data. In particular, we investigate whether individuals’ choice of financial services correlates with macro-financial and macro-structural policies and conditions, in addition to individual and country characteristics. We start our analysis on middle and low-income countries, and then zoom in on sub-Saharan Africa, currently the region that most relies on informal financial services, and which has the largest uptake of mobile banking. We find robust evidence of an association between macroprudential policies and individuals’ choice of financial access after controlling for personal and country-level characteristics. In particular, macroprudential policies aimed at controlling credit supply seem to be associated with greater resort to informal financial services compared with formal, bank-based access. This highlights the importance for central bankers and financial sector regulators to consider the potential spillovers of monetary policy and financial stability measures on financial inclusion. |
| Date: | 2020–05–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:20/74&r=all |
| By: | Isabelle Guérin; Sébastien Michiels; Arnaud Natal; Christophe Jalil Nordman; Govindan Venkatasubramanian |
| Abstract: | This article focuses on the consequences of the Indian lockdown in terms of debt. It is based on an ongoing study in a rural area of Tamil Nadu, South India. It draws on a long-term knowledge of this region, longitudinal quantitative household survey data on employment, debt and assets (2010-2016/17) as well as qualitative surveys conducted by telephone since the beginning of the lockdown in March 2020. Our results show: (i) the drying up of part of farm income and the bulk of off-farm income; (ii) the limited role of cash saving and cash transfers; (iii) the debt burden, since the population has faced massive debt growth over the past decade and some households are already very financially fragile; (iv) a predominance of informal finance with, however, a rise in finance; (v) a suspension of repayments, including for most informal lenders; (vi) a halt to unsecured debt and an erosion of the trust that cements most transactions; (vii) finally, the emergence of new forms of secured debt that threaten household assets. The sharp rise in debt observed over the last decade is the result of a widening of credit opportunities, partly formal but mostly informal. These have been made possible by building new relationships of trust but also of confidence in the future, based on strong economic growth that was believed to be sustainable. The lockdown highlights the fragility of these dynamics. For the poorest (mostly, but not only, Dalits), neither the state nor intra-caste or kinship solidarity are sufficient as a safety net. Impoverishment and a return to old forms of dependency seem to be the only way out. |
| Keywords: | Debt; lockdown; caste; employment; India; Trust |
| JEL: | I13 E24 O18 R20 Z13 |
| Date: | 2020–07–09 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:2013/309493&r=all |