nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2011‒12‒05
four papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. The Unofficial Economy in Russia By Byung-Yeon Kim
  2. Entrepreneurship and cities: evidence from the post-communist world By Maksim Belitski; Julia Korosteleva
  4. Sick of Taxes? Evidence on the Elasticity of Labor Supply when Workers Are Free to Choose By Martin Ljunge

  1. By: Byung-Yeon Kim (Department of Economics, Seoul National University, Institute of Economic Research, Kyoto University)
    Abstract: This paper provides the various estimates of Russia’s unofficial economy during the transition period and discusses the estimation methods of the unofficial economy. It suggests that Russia’s unofficial economy, which substantially increased during the early 1990s and stands still high compared to other countries, is caused by the institutional and cultural legacy from the Soviet era and problems in the transition period such as poor quality of institutions and newly available opportunities. It emphasizes the importance of understanding the evolution of the unofficial economy over time and its heterogeneity across countries.
    Date: 2011–11
  2. By: Maksim Belitski; Julia Korosteleva
    Abstract: We investigate variation in entrepreneurial activity across 98 Eastern Neighbourhood cities. The aim of study is twofold: to bridge the city-level gap in empirical research on entrepreneurship in the Eastern Neighbourhood urban areas; to focus on urban heterogeneity in entrepreneurship unlike regional level studies which deal both with urban and rural areas where entrepreneurial activity has different characteristics. Finally, in accordance with urban incubator hypothesis the incidence of entrepreneurship is higher in urban agglomerations. To measure entrepreneurship a number of small businesses is used which has been widely used in a number of studies for capturing entrepreneurial activities. We employ the System GMM estimator to establish our model, which is determined by the need to address some econometric problems, including the problem of potential endogeneity of some of our regressors; the presence of predetermined variables, namely the lagged dependent variable; the presence of fixed effects which may be correlated with the repressors; finite sample. We find that the heterogeneity in entrepreneurship is largely explained by the agglomeration effects and city socio-economic characteristics such as level of poverty. On the one hand this is puzzling, as the general perception of the nature of entrepreneurial activity in these countries is that it is necessity-driven. On the other hand, the role of the government and social benefits still seem to play an important role in the countries of transition discouraging individuals from considering entrepreneurship as a way out of poverty. We fail to support the hypothesis of Moscow proximity as an important driver for small business activity in these cities. At the same time our findings support capital-city hypothesis as an incubator for business start-ups. Unfortunately, the level of capital stock and criminality add little in explaining the variation of entrepreneurship. We also do not find any robust effect of transition reforms, including small-scale privatisation, banking transformation and business regulation on entrepreneurial entry in the Eastern Neighbourhood cities.
    Date: 2011–09
  3. By: Alex Almeida; Boris Bravo-Ureta
    Abstract: The objective of this paper is to analyze the determinants of off-farm labor supply by heads of household and their spouses in Nicaragua. Using a three-year balanced panel dataset, we refine the approach introduced by Jacoby (1993) and Skoufias (1994) to estimate shadow wages and shadow income, and we also apply the semiparametric approach developed by Kyriazidou (1997) to panel data which mitigates biases not only from some key individual and farm time-invariant characteristics but also from sample selection. The main findings suggest that the shadow wages and shadow income of household heads and their spouses play a major role in the supply of labor to off-farm activities. When the marginal productivity of agricultural households goes up, there is a reduction in hours allocated to off-farm activities. We also find that education, age, remittances, household size, and whether sons and daughters work are related to off-farm labor supply, with significant differences between their effect on heads and their spouses.
    Date: 2011–09
  4. By: Martin Ljunge (University of Copenhagen and SITE)
    Abstract: I estimate a price elasticity of sickness absence. Sick leave is an intensive margin of labor supply where individuals are free to adjust. I exploit variation in tax rates over two decades, which provide thousands of differential incentives across time and space, to estimate the price responsiveness. High taxes provide an incentive to take more sick leave, as less after tax income is lost when taxes are high. The panel data, which is representative of the Swedish population, allow for extensive controls including unobserved individual characteristics. I find a substantial price elasticity of sick leave, -0.7, with respect to the net of tax rate. Though large relative to traditional labor supply elasticities, Swedes are half as price elastic as bike messengers, and just as elastic as stadium vendors on the margin which they can adjust freely.
    Keywords: sick leave, adjustable labor supply, work effort, taxes
    JEL: H31 I31 J22
    Date: 2011–10–18

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