nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2012‒05‒22
nine papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Labor share, informal sector and development By Maarek, Paul
  2. Corruption and tax evasion an optimal policy By Jellal, Mohamed; Bouzahzah, Mohamed
  3. Measuring the underground economy with the currency demand approach: a reinterpretation of the methodology, with an application to Italy By Guerino Ardizzi; Carmelo Petraglia; Massimiliano Piacenza; Gilberto Turati
  4. The Determinants of Earnings Inequalities: Panel Data Evidence from South Africa By Kerr, Andrew; Teal, Francis J.
  5. Micro-evidence on day labourers and the thickness of labour markets in South Africa By PF Blaauw; WF Krugell
  6. Cashless banking in Nigeria and its implications By Olajide, Victor C.
  7. High Implicit Interest Rates in the Context of Informal Traditional Housing Transactions: Evidence from Morocco By Driouchi, Ahmed; Mertou, Amat
  8. Economists versus the Street: Comparative Viewpoints on Barriers to Self-employment in Khayelitsha, South Africa By Paul Cichello; Liberty Mncube; Morne Oosthuizen; Laura Poswell
  9. The economic costs of organized crime: evidence from southern Italy By Paolo Pinotti

  1. By: Maarek, Paul
    Abstract: This paper aims to understand the pattern of the labor share of income during the development process. We highlight a U-shapped relationship between development and the labor share. Our theory emphasizes the interplay between firms'monopsony power and the size of the informal sector when the formal labor market has frictions. The size of the informal sector parameterizes workers'outside opportunities in wage setting. In the first stage of development, productivity gains are not compensated by wage increases, as most of workers'outside opportunities depend on the informal sector whose productivity remains unchanged. The labor share decreases as a result. In the second stage of development, outside opportunities rely more on productivity in formal firms as the formal sector expands. Consequently, the labor share increases. We then use a policy experiment, namely capital account liberalization episodes, in order to determine the causal impact of economic development on the labor share.
    Keywords: Development ; Informal sector ; Labor share ; Matching frictions
    JEL: E25 O17 J42
    Date: 2012–04
  2. By: Jellal, Mohamed; Bouzahzah, Mohamed
    Abstract: Under Principal-Agent-Supervisor paradigm, we examine in this paper how a tax collection agency changes optimal schemes in order to lessen the occurrence of corruption between the tax collector and the taxpayer. The Principal, who maximizes the expected net fiscal revenue, reacts by decreasing tax rates when the supervisor is likely to engage in corrupt transaction with taxpayer.The combat against collusion and corruption may explain the greater reliance on indirect taxes than on direct taxes both in developed and developing countries like Morocco.
    Keywords: Principal;Supervisor;Agent; Corruption; Tax Evasion
    JEL: D73 D82 H2 H26
    Date: 2012
  3. By: Guerino Ardizzi (Banca d'Italia); Carmelo Petraglia (University of Basilicata); Massimiliano Piacenza (University of Torino); Gilberto Turati (University of Torino)
    Abstract: We contribute to the debate on how to assess the size of the underground or shadow economy with a reinterpretation of the traditional Currency Demand Approach (CDA) à la Tanzi. We introduce three main innovations. First, we take as dependent variable in the money demand equation a direct measure of the value of cash transactions: the flow of cash withdrawn from current accounts relative to total non-cash payments. This avoids use of the Fisher equation and so overcomes two severe criticisms of the traditional CDA. Second, instead of the tax burden, usually taken as the main motive for non-compliance, we include among the covariates two direct indicators of detected tax evasion. Finally, we also control for the role of illegal economic activity, such as drug dealing and prostitution, which – jointly with the shadow economy – contributes to the larger aggregate of the unobserved economy and represents a significant component of total cash payments. We then propose an application of this “modified CDA” to a panel of 91 Italian provinces for the years 2005-2008.
    Keywords: underground economy, currency demand approach, cash transactions, tax evasion, illegal production
    JEL: E26 E41 H26 K42 O17
    Date: 2012–04
  4. By: Kerr, Andrew (University of Cape Town); Teal, Francis J. (University of Oxford)
    Abstract: In this paper we analyse the relative importance of individual ability and labour market institutions, including public sector wage setting and trade unions, in determining earnings differences across different types of employment. To do this we use the KwaZulu-Natal Income Dynamics Study data from South Africa, which show extremely large average earnings differentials across different types of employment. Our results suggest that human capital and individual ability explain much of the earnings differentials within the private sector, including the union premium, but cannot explain the large premiums for public sector workers. We show that a public sector premium exists only for those moving into the public sector. The paper addresses the challenges of non-random attrition and measurement error bias that panel data bring. Our results show that emphasising a simple binary dichotomy between the formal and informal sector can be unhelpful in attempting to explore how the labour market functions.
    Keywords: formality, trade unions, public sector, earnings, South Africa
    JEL: J31 J51 J45 O12
    Date: 2012–04
  5. By: PF Blaauw; WF Krugell
    Abstract: The South African labour market is characterised by sharp segmentation, high unemployment and apparently limited informal sector employment. Recent work has focussed on the importance of the quality of education while others have argued that the rigidity of the labour market constrains employment growth. This paper considers the spatial aspects of the day labour market and argues that the size and proximity of economic activity found in agglomerations ensure a thick labour market that allows for better matching between workers and jobs. The results indicate that the day labourers, who were hired by the same employer more often, receive higher earnings and the thicker metropolitan labour market allows workers to become more specialised and receive higher earnings.
    Keywords: Day labourers, Labour market, Agglomeration
    JEL: J21 J24 J31 R23
    Date: 2012
  6. By: Olajide, Victor C.
    Abstract: Electronic money has ushered in the cashless banking framework across different countries of the world and this is made possible by the advances in information technology and invention that began in Japan and later the West. However this new introduction into the various economies of the world is not without reaction both favorable and unfavorable. This paper seeks to point out the implications, in a developing economy like Nigeria, of a cashless banking which still permits some cash in the economy that is home to both the formal and informal sector. Theoretical findings supports the view of some economists concerning the need for regulatory agencies to be very wary the possibly retarding effect of the introduction of such a sophisticated payment system, particularly in developing economies like Nigeria, with the coexistence of the formal and informal sectors, that may not be able to muster the wherewithal to bear the burden of electronic payments and hence the cashless banking paradigm.
    Keywords: Electronic money; Cashless Banking; demand and time deposits
    JEL: E42 E40
    Date: 2012–04–13
  7. By: Driouchi, Ahmed; Mertou, Amat
    Abstract: Abstract: The objective of this research is to investigate the situation of the poor in Morocco through assessing the implicit charges of informal housing transactions in different cities. A model allowing the calculation of the implicit interest rate from the traditional-mortgage transactions is applied. Data about traditional-mortgage housing transactions, duration, and rental values are collected from a sample of households in different cities. The results reveal that these transactions are costly although they involve small amounts of money. On average, a rate higher than 6% but lower than 50 % is implicitly implied in traditional-mortgage transactions. The overall results confirm that poor households are implicitly charged higher interest rates in their housing transactions in comparison with the explicit rates charged by formal credit markets, including microfinance. This implies that administrative and economic policies are to be further developed to ensure that poor households can easily access formal credit markets.
    Keywords: Keywords: Implicit interest rate- Informal Traditional Housing- Poverty-Morocco
    JEL: D86 D72 R21 G21
    Date: 2012–04–31
  8. By: Paul Cichello; Liberty Mncube; Morne Oosthuizen; Laura Poswell (Haverford College; )
    Abstract: What prevents the unemployed in Khayelitsha, South Africa from trying self-employment? Perceptions of a small group of academic economists are presented and compared to the perceptions of unemployed Khayelitsha residents themselves. The largest differences in view-points are that a) academics believe that the general business skills of residents hold the unemployed back substantially while residents perceive it as a minor issue; and b) compared to academics, residents of Khayelitsha give much more weight to jealousy within the community and to the continual vulnerability to business failure as barriers to trying self-employment.
    Keywords: self employment, informal economy, unemployment, perceptions, South Africa, crime, risk
    JEL: A1
    Date: 2011–11
  9. By: Paolo Pinotti (Università Bocconi, Department of policy analysis and public management)
    Abstract: I examine the post-war economic development of two regions in southern Italy exposed to mafia activity after the 1970s and apply synthetic control methods to estimate their counterfactual economic performance in the absence of organized crime. The synthetic control is a weighted average of other regions less affected by mafia activity that mimics the economic structure and outcomes of the regions of interest several years before the advent of organized crime. The comparison of actual and counterfactual development shows that the presence of mafia lowers the growth path, at the same time as murders increase sharply relative to the synthetic control. Evidence from electricity consumption and growth accounting suggest that lower GDP reflects a net loss of economic activity, due to the substitution of private capital with less productive public investment, rather than a mere reallocation from the official to the unofficial sector.
    Keywords: organized crime, economic development, synthetic control methods
    JEL: K4 R11 O17
    Date: 2012–04

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