nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2012‒09‒03
five papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Taxing the unobservable: The impact of the shadow economy on inflation and taxation By Ummad Mazhar; Pierre-Guillaume Méon
  2. ‚Getting Asylum Seekers into Employment‘? – Ein Allheilmittel für die Europäische Einwanderungspolitik? By Tausch, Arno
  3. Inheritance in Germany 1911 to 2009: A Mortality Multiplier Approach By Christoph Schinke
  4. Shelter from the storm -- but disconnected from jobs : lessons from urban South Africa on the importance of coordinating housing and transport policies By Lall, Somik V.; Brink, Rogier van den; Dasgupta, Basab; Leresche, Kay Muir
  5. Cali y las consecuencias económicas del narcotráfico By Andrea Otero

  1. By: Ummad Mazhar; Pierre-Guillaume Méon
    Abstract: We test the notion that a government may rely less on taxes and more on inflation to finance its expenditures the larger the size of the shadow economy. In a sample of developed and developing countries over the 1999-2007 period, we indeed report a negative relation between the tax burden and the size of the shadow economy, and a positive relation between inflation and the size of the shadow economy. We provide evidence that both are conditional on central bank independence and the exchange rate regime. Both survive a series of robustness checks, controlling for reverse causality, simultaneity, level of development, and estimates of the shadow economy.
    Keywords: Shadow economy; Inflation; Taxes; Inflation tax
    JEL: O17 E52 H26 H27
    Date: 2012–08
  2. By: Tausch, Arno
    Abstract: The cross-national empirics of the international asylum system are in their infancy. While Hatton, 2009, and Neumayer, 2005, 2006a and 2006b provided important and valuable cross-national insights on the drivers of the asylum seeking process, as yet little is known in terms of hard-core evidence about the effects of asylum-driven migration processes on the recipient countries. But such analyses are necessary, since asylum plays such an important role in the overall South-North migration process, and several international decision makers, especially on the European level, are increasingly stressing the necessity to get asylum seekers into employment, while others – like the Austrian Ministry of the Interior in its long-term strategy, published in 2012 – vehemently argue in favour of a clear separation between legal, employment-related migration and asylum. Will ‘getting asylum seekers into employment’ have any effects on social and economic development, or will it motivate more and more people to emigrate for work as “free riders” of the asylum system? This paper should preliminarily attempt to close this widening and politically highly relevant research gap. The EU's total population was 502.5 million, with a yearly increase of 0.5 million due to natural population increase and 0.9 million due to net migration. While the European Union accepts about 2.4 million immigrants per year from third countries, among them more than 800.000 people in the framework of work visas, and more than 750.000 people under the title of family reunifications, 260.000 to 300.000 people apply for asylum each year. All official European Commission data, surveyed in this article, seem to suggest that asylum and illegal migration are part and parcel of the overall migration process. While on average ¾ of the asylum applications in Europe are being rejected by the authorities as unfounded, there was a stock of up to 4.5 million illegal residents already residing in the entire EU-27; and in addition, we can assume that around 450.000 illegal entrants are apprehended each year at the EU external borders. The illegal inflow and shadow economy migration statistics also have to take into account the around 340.000 persons, denied entry each year, suggesting that the overall shadow migration pressure, resulting from unfounded asylum and illegal or rejected entries amounts to more than 1 million people each year, by far exceeding the 800.000 work visas granted annually. Thus there is an urgent political need to act. The somewhat surprising, but undisputable net end result of all these European immigration procedures (work visas, family re-unifications, and other migration) up to now was a sharp and clear-cut rise in the total stock of the resident population in Europe from only three countries: Turkey (approx. 2.4 million), Morocco (approx. 1.8 million) and Albania (approx. 1 million). They are the absolute winners of the hitherto existing de-facto European migration ‘policy’. The combined size of illegal border crossings, denied entry applications, and rejected asylum applications of more than 1.0 million persons seems to suggest that indeed there exists a huge migration-related shadow economy (Graphs 1-3). Our ensuing data analysis is based on the tradition of cross-national development accounting, using an expanded version of the Tausch, 2012b data set (“Corvinus University data set”) and UNDP, 2009 and UNHCR, 2012 figures on migration. We start these empirical cross-national analyses by providing some calculations about the societal effects of the well-known Migration Policy Index, which measures the general institutional ease with which migration recipient countries integrate migrants economically in general. Our calculations reconfirm the reservations by the present author (Tausch, 2010, 2012) against the generalized neo-liberal thesis that a free migration process automatically ensures economic prosperity. With the level of development and the overall conditions of the migration process being constant, there are some very serious and significant negative partial correlations of the MIPEX Index with indicators of political participation and the fight against discrimination. Our data also show the significant pull-factors, caused by an open migration regime, as measured by the MIPEX Index, as well as the societal consequences of a high MIPEX Index score - growing xenophobia against the weakest groups in society - such as the Roma and Sintis, an ensuing growing public debt burden, and lower economic growth. One might still argue that, on ethical grounds, one should be still in favour of increasing MIPEX index performance, but in terms of its societal consequences, our results suggest to be pessimistic. We then move on to analyse systematically the effects of the UNDP cross-national migration variables on socio-economic development and vice versa. Our hypothesis is that opening the gates of unlimited access of asylum seekers to the labour market an even more substantial number of people would decide to enter the labour markets in the developed countries in Europe via the asylum procedure, thus thwarting any attempts to arrive at a more education and skill oriented immigration system. We try to corroborate this by first looking into the question of the relationship between access liberalization, measured by the MIPEX Index, and the UNDP documented asylum burden rate (Graph 1 and 2). Although the relationship is not too strong, there are some positive trade-offs between the two variables. In Table 3 of this study, we then provide a very clear-cut argument on how a migration policy, based on asylum influx, is ill-conceived, and several important phenomena are significantly being undermined - internal security, the balance of tolerance in society, gender relations, education, and environmental conditions. Our partial correlation analysis shows that with increasing dependence on the immigration system based on the influx of asylum seekers, there is a significantly larger societal acceptance of the value orientation that men have precedence on the labour market over women when jobs are scarce; and in addition, the import of polluting goods and raw materials; maternal mortality, terrorist attacks, and the violations of civil rights and political rights increase, independent from the development level reached and the general conditions of the migration process being in place. The near bankruptcy of the current de facto existing European asylum-based migration policy is also reflected in Table 4 of this study – documenting the partial correlations of asylum seekers per head of population with processes of socio-economic development. Again, the level of development and general overall conditions of the migration process were held constant. Crime rates, macho values, and the terrorist threat increase significantly, while fiscal freedom, growth prospects in the current crisis and the employment of older workers are being curtailed, and important areas of environmental policy, measured by the Yale-Columbia environment policy data series, are again being negatively affected. In addition, also the World Values Survey data on the work ethics of society are negatively being affected by an asylum-based migration system. Table 5 then documents the positive effects of work permit requirements for asylum seekers, still in place in several European countries and documented by the European Commission/Europäische Kommission (2012), on various socio-economic indicators from the Tausch 2012b Corvinus data set, including environment data, economic growth, education, and World Values Survey indicators of tolerance and volunteer activities. Social security, growth, environmental policy, education, health, liberal values in society - all these are positively affected by a work permit regime for asylum seekers in Europe, which the European Commission seems to be inclined to abolish. Table 6 shows the sobering results of the determinants of average economic growth rates in the EU-27 in the era of the current world economic crisis, 2008 to 2011. The crisis hit the poorer EU countries - ceteris paribus - far harder than the richer countries, and immigration rates are a significant negative determinant of growth, while the work permits regime for asylum seekers significantly and positively affects economic growth. Table 7 shows our final estimates of the determinants of asylum burden rates in the world system. In addition to the famous "bell-curve" of the levels of development, private health expenditures and the military personnel rates are significant drivers of asylum burden rates, while we also show that dependency from the large transnational corporations (measured by UNCTAD data on MNC penetration and its rise over time) are conducive to such higher asylum burden rates. Thus, we can show that traditional quantitative approaches to international development, initiated by the Swiss sociologist Volker Bornschier, which are based on UNCTAD data on MNC penetration and its rise over time, explain well contemporary social asylum process realities of the world today. By contrast, an employment policy favouring the employment rates of older workers generally deters higher asylum dependency ratios. In Tables 8a and 8b, we finally show bivariate and partial correlations of asylum procedure global recognition rates, as documented by the UNHCR for 2010, and key variables of socio-economic development, as documented in Tausch, 2012a, 2012b. Our results again would caution against an asylum-based or asylum-driven immigration policy. We conclude by saying that the European Commission would be well advised to seek to redistribute current asylum inflows from countries like Germany, France, Netherlands, Sweden, and Austria to other EU-member countries, thus providing more fairness in the current Schengen system. Doubling or even tripling the European numbers of legal work permits would also be an advisable strategy, and Europe should seriously consider the new Austrian migration procedure for third-country nationals (Red-White-Red-card) as a best practice model.
    Keywords: International Migration Human Resources; Human Development; Income Distribution; Migration Regional Migration; Regional Labour Markets; Population; Neighbourhood Characteristics
    JEL: F22 O15 R23
    Date: 2012–08–20
  3. By: Christoph Schinke
    Abstract: We estimate the size of inheritance and gift flows in Germany for selected years over the last century, applying the methodology used by Piketty (2011) for France and combining national accounts, tax statistics and survey data (mainly the German Socio-Economic Panel, SOEP). The data clearly supports the finding of a U-shaped evolution. The annual flow of inheritance and gifts was almost 15% of national income in 1911 and declined to less then 2% by the middle of the last century. Over the last five decades, it has risen steadily to over 10% of national income in recent years, amounting to Euro 220 billion in 2009. The pattern is close to the evolution in France, but at a slightly lower level. Evidence on transfers based on pure household survey data or inheritance tax statistics yields much lower values. We can decompose the gap between the taxed and the aggregate inheritance flow: controlling for valuation and tax evasion effects, the taxed flow would be at least twice as high; tax exemption effects account for the rest.
    JEL: D31 H24 N34
    Date: 2012
  4. By: Lall, Somik V.; Brink, Rogier van den; Dasgupta, Basab; Leresche, Kay Muir
    Abstract: Informal settlements are a permanent feature of South Africa's cities. Estimates from the General Household Survey by Statistics South Africa show that more than 26 percent of all households in the country's six metropolitan areas live in informal dwellings. The government's policy efforts have focused on provision of subsidized housing, first introduced as part of the Reconstruction and Development Program. Through the lens of new urbanism and coordination in planning this paper explores the possible impact of the program using data from the General Household Survey. The analysis of the program's beneficiaries relative to non-beneficiaries does not show that public housing provision has multiplier effects in terms of complementary private investments in housing maintenance or in upgrading. This is likely because Reconstruction and Development Program housing is often far from employment centers, with the houses built in the"old"apartheid locations that are disconnected from employment centers. In addition, households do not receive title deeds and are not allowed to rent out these dwelling. On the demand side, the authors carried out a small sample survey in Cape Town and find that, on a per hectare basis, shack dwellers are paying around the same for access to land as can be found in the up-scale market for undeveloped land. However, land zoning regulations and subdivision laws do not allow supply of small plots that are compatible with the affordability of poor households.
    Keywords: Housing&Human Habitats,Urban Housing,Municipal Housing and Land,Real Estate Development,Land and Real Estate Development
    Date: 2012–08–01
  5. By: Andrea Otero
    Abstract: During the nineties, Cali went through a series of events that resulted into a crisis. In the same decade happened: the economic liberalization, the largest mortgage crisis over the past 30 years of the country, the crisis in public finances of the city and the upsurge of drug trafficking. These factors, jointly, had adverse consequences for the economic growth of the city, especially for the industrial sector. At the beginning of the XXI Century, the city tries to recover from that terrible decade. The services and trade sector is the most important, while industry shows some positive results. However, Cali has high rates of unemployment, poverty and inequality. The education and public finances sectors also require interventions, since the results obtained in these two fields are lower than those attained by similar cities. But the main problem of the city is violence, reflected in high homicide rates and its impact on the dynamics of physical, human and social capital accumulation. Drug trafficking, historical and current, seems to be the reason for this situation. That activity has contributed to increase levels of violence in Cali and other municipalities of Valle del Cauca, and weakens local institutions, encourages corruption and creates a bad investment climate that affects industry negatively. RESUMEN: Durante los noventa, Cali pasó por una serie de eventos que desencadenaron una crisis. En una misma década sucedieron: la apertura económica, la crisis hipotecaria más importante de los últimos 30 años del país, la crisis en las finanzas públicas de la ciudad y el recrudecimiento del narcotráfico, los cuales, en conjunto, afectaron negativamente el crecimiento económico de la ciudad y tuvieron repercusiones especiales sobre el sector industrial. A comienzos del Siglo XXI, la ciudad intenta recuperarse de lo sucedido. El sector dedicado al comercio y los servicios es el más importante, mientras que la industria se recupera. Sin embargo, Cali presenta altas tasas de desempleo, pobreza y desigualdad. El sector educativo y las finanzas públicas también requieren intervenciones, ya que los resultados obtenidos en estos dos campos son inferiores a las de otras ciudades comparables. Pero el principal problema de la ciudad es la violencia, que se refleja en una alta tasa de homicidio y en su impacto sobre la acumulación de capital físico, humano y social. El narcotráfico, histórico y actual, parece ser el culpable de esta situación. Esta actividad ha contribuido a aumentar los niveles de violencia en Cali y otros municipios del Valle del Cauca, además de debilitar las instituciones locales, fomentar la corrupción y generar un mal clima de inversión que no favorece a la industria.
    Date: 2012–08–26

This nep-iue issue is ©2012 by Catalina Granda Carvajal. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.