nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2012‒12‒22
eleven papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Labor Market Institutions and Informality in Transition and Latin American Countries By Lehmann, Hartmut; Muravyev, Alexander
  2. Heterogeneity in Subjective Wellbeing: An Application to Occupational Allocation in Africa By Falco, Paolo; Maloney, William F.; Rijkers, Bob; Sarrias, Mauricio
  3. A Model of Comparative Advantage with Matching in the Urban Tanzanian Labour Market. By Andrew Kerr
  4. Tax Evasion, Inequality and Progressive Taxes: A Political Economy Perspective By Radhika Lahiri; Mark Phoon
  5. Reciprocal Relationships in Tax Compliance Decisions By Mathieu Désolé; Stefano Farolfi; Patrick Rio
  6. Improving the Tax System in Indonesia By Jens Arnold
  7. Is the Burden Too Small? – Effective Tax Rates in Ghana By David Nguyen-Thanh; Christoph Strupat
  8. Minimum wages and competition: The case of the German roofing sector By Kraft, Kornelius; Rammer,Christian; Gottschalk, Sandra
  9. The Impact of Minimum Age of Employment Regulation on Child Labor and Schooling: Evidence from UNICEF MICS Countries By Eric V. Edmonds; Maheshwor Shrestha
  10. Household Debt and Social Interactions By Georgarakos, Dimitris; Haliassos, Michalis; Pasini, Giacomo
  11. Effets de pairs et fraude sociale : une analyse économétrique sur données françaises By Charles Bellemare; Bernard Fortin; Nadia Joubert; Steeve Marchand

  1. By: Lehmann, Hartmut (University of Bologna); Muravyev, Alexander (St. Petersburg University GSOM and IZA)
    Abstract: This paper analyzes, using country-level panel data from transition economies and Latin America, the impact of labor market institutions on informal economic activity. The measure of informal economic activity is taken from Schneider et al. (2010), the most comprehensive study to date. The data on institutions, which cover employment protection legislation (EPL), the tax wedge, the unemployment benefit level, unemployment benefit duration and union density, are assembled at the IZA (transition countries) and the World Bank (LAC countries). We find that a more regulated labor market (higher EPL) increases the size of the informal economy. There is also evidence that a larger tax wedge increases informality. The tax wedge elasticity of informal economy, when evaluated at the sample mean, is rather modest, around 0.1%. Our results are broadly in line with the literature, which identifies labor market regulation and the tax wedge as important drivers of informality.
    Keywords: labor market institutions, informality, macroeconometric regressions, transition countries, Latin America
    JEL: E24 J21 J42 O17 P20
    Date: 2012–11
  2. By: Falco, Paolo (University of Oxford); Maloney, William F. (World Bank); Rijkers, Bob (World Bank); Sarrias, Mauricio (Universidad Catolica del Norte)
    Abstract: By exploiting recent advances in mixed (stochastic parameter) ordered probit estimators and a unique longitudinal dataset from Ghana, this paper examines the distribution of subjective wellbeing across sectors of employment and offers insights into the functioning of developing country labor markets. We find little evidence for the overall inferiority of the small firm informal sector: there is not a robust average satisfaction premium for formal work vis a vis self-employment or informal salaried work and, in fact, informal firm owners who employ others are on average significantly happier than formal workers. Moreover, the estimated underlying random parameter distributions unveil substantial latent heterogeneity in subjective wellbeing around the central tendency that fixed parameter models cannot detect. All job categories contain both relatively happy and disgruntled workers. Concretely, roughly 67%, 50%, 40% and 59% prefer being a small firm employer, sole proprietor, informal salaried, and civic worker respectively, to formal work. Hence, there is a high degree of overlap in the distribution of satisfaction across sectors. The results are robust to the inclusion of fixed effects, and using alternate measures of satisfaction. Job characteristics, self-perceived autonomy and experimentally elicited measures of attitudes toward risk do not appear to explain these distributional patterns.
    Keywords: subjective wellbeing, mixed ordered probit, self-employment, informality, developing country labor markets, Africa
    JEL: C35 J2 J3 J41 L26 I32 O17
    Date: 2012–11
  3. By: Andrew Kerr
    Abstract: In this paper I build an equilibrium search model of the urban Tanzanian labour market that explains the choice between wage and self-employment and the variation in earnings across and within these sectors. Self-employment is very common in urban Tanzania and survey data show both that there are large overlaps in the distribution of earnings in private wage employment and self-employment and that there is little movement between wage and self-employment. This suggests that self-employment represents a worthwhile alternative to wage employment in small, low-productivity firms for the majority of urban Tanzanians, in contrast to the traditional view of African labour markets in which wage employment in small firms and self-employment are lumped together as the informal sector.
    Date: 2012
  4. By: Radhika Lahiri (QUT); Mark Phoon
    Abstract: This paper revisits the original Allingham and Sandmo (1972) framework with a view towards addressing the issue of tax compliance, and examining the political economy implications of tax evasion for progressivity in the tax structure. In so doing, we ‘start from scratch’ by constructing a simple extension of the basic Allingham and Sandmo construct that allows agents to initially decide whether to evade taxes or not. We then use a step-by-step model building procedure by taking both the basic model and its ‘evade-or-not’ counterpart towards a dynamic macroeconomic framework. We find that the ‘evade or not’ assumption has strikingly different and more realistic implications for the extent of evasion, and demonstrate that it is a more appropriate modeling strategy in the context of macroeconomic models. Furthermore, our numerical analysis suggests that the political outcome for the tax rate for a given level of inequality is conditional on whether there is a large or small or large extent of evasion in the economy, although changes in inequality do not matter for this outcome.
    Keywords: Tax Evasion; Inequality; Political Economy
    JEL: H26 D63 E60
    Date: 2012–12–10
  5. By: Mathieu Désolé; Stefano Farolfi; Patrick Rio
    Abstract: This paper uses a CGT TU game modified into a coordination experiment to explore the causal effect of context on players’ behaviour. An analytical framework focusing on four attributes representative of the game’s context is proposed and an experimental protocol based on this framework allows testing hypotheses regarding the influence of context on players’ choices. Results show that attributes such as Repetition and Communication seem to have a higher influence than Illustration on players’ behaviour. The peculiar nature of the experimental results in the control group, showing the emergence of a focal point other than the outcome prescribed by the theory, allows discussing the expected “noise” observed in the treatments from a new perspective.
    Date: 2012–12
  6. By: Jens Arnold
    Abstract: Indonesia has come a long way in improving its tax system over the last decade, both in terms of revenues raised and administrative efficiency. Nonetheless, the tax take is still low, given the need for more spending on infrastructure and social protection. With the exception of the natural resources sector, increasing tax revenues would be best achieved through broadening tax bases and improving tax administration, rather than changes in the tax schedule that seems broadly in line with international practice. Possible measures to broaden the tax base include bringing more of the self-employed into the tax system, subjecting employer-provided fringe benefits and allowances to personal income taxation and reducing the exemptions from value-added taxes. Similarly, broad-based investment credits would be a less distortive way to enhance investment incentives than selective tax holidays. Introducing a targeted, simplified tax regime for small and medium-sized enterprises, as currently planned by the government, could foster their integration into the tax system in the longer run, even if its short-run revenue potential is limited. Upgrading tax administration has made substantial progress in Indonesia since 2002, although there is still scope to improve the training of tax officers and the administration’s audit and litigation capacities, while strengthening internal control systems and enhancing the transparency of administrative decisions. The audit system could be further improved by allocating more tax audits on the basis of compliance risks. In the natural resources sector, particularly in mining, there is a case for increasing the government’s share of resource rents through higher tax rates imposed on these rents, as opposed to taxing revenues. This would imply a willingness of the government to bear a larger share of the exploration and development risk than heretofore, which Indonesia, with its improved access to international financial markets and a diversified resource portfolio, is now well placed to do. In the mining sector, a powerful rent tax regime with a large government take would serve the country better than export taxes and ownership restrictions that have been decided recently. This Working Paper relates to the 2012 OECD Economic Review of Indonesia (<P>Améliorer le système fiscal en Indonésie<BR>L’Indonésie a beaucoup amélioré son système fiscal au cours de la dernière décennie, tant en ce qui concerne le montant des recettes collectées que l’efficience administrative. Néanmoins, les recettes fiscales restent faibles au regard de la nécessité d’accroître les dépenses consacrées aux infrastructures et à la protection sociale. À l’exception du secteur des ressources naturelles, l’augmentation des recettes fiscales doit passer avant tout par l’élargissement de l’assiette et l’amélioration de l’administration fiscale, plutôt que par une révision du barème d’imposition qui semble globalement conforme à la pratique internationale. Parmi les mesures possibles pour élargir l’assiette figurent l’intégration des travailleurs non salariés dans le système fiscal, l’assujettissement à l’impôt sur le revenu des personnes physiques des biens en nature et des indemnités versés par l’employeur, et la réduction des exemptions à la TVA. Dans le même ordre d’idées, l’introduction de crédits d’impôt généreux en faveur de l’investissement serait un moyen de stimuler l’investissement qui induirait moins de distorsions que des exonérations fiscales sélectives. La mise en place d’un régime simplifié et ciblé pour les petites et moyennes entreprises, actuellement envisagé par les pouvoirs publics, pourrait favoriser leur intégration dans le système fiscal à plus long terme, même si l’effet à court terme sur les recettes est limité. La modernisation de l’administration fiscale a beaucoup progressé en Indonésie depuis 2002, bien qu’il soit encore possible d’améliorer la formation des agents des impôts et de renforcer les capacités de l’administration à mener des vérifications et à agir en justice, tout en consolidant les systèmes de contrôle interne et en accroissant la transparence des décisions administratives. Le système de vérification pourrait être perfectionné en fondant les décisions de contrôle fiscal sur les risques de non paiement. Dans le secteur des ressources naturelles, et notamment les industries extractives, il y a lieu d’accroître la part des rentes de ressources revenant à l’État en relevant les taux d’imposition de ces rentes, au lieu de taxer les recettes. Une telle mesure impliquerait la volonté des pouvoirs publics de prendre à leur charge une partie des risques d’exploration et de mise en valeur plus importante qu’auparavant, ce qui est tout à fait à la portée de l’Indonésie, qui bénéficie aujourd’hui d’un meilleur accès aux marchés internationaux de capitaux et d’un portefeuille de ressources diversifié. Dans le secteur minier, un régime performant d’imposition des rentes, qui permette à l’État de percevoir une fraction élevée des recettes, servirait davantage les intérêts du pays que les taxes à l’exportation et les restrictions à la propriété qui ont été décidées récemment. Ce Document de travail se rapporte à l’Étude économique de l’OCDE de l’Indonésie 2012 (
    Keywords: industrial policy, tax administration, Indonesia, export taxes, tax exemptions, tax systems, natural resource taxation, politique industrielle, ressources naturelles, administration fiscale, Indonésie, exonération fiscale, système fiscal, taxes à l’exportation
    JEL: F13 H21 H23 H24 H25 H26 H27 L78 O17 O23 O24 O25
    Date: 2012–10–30
  7. By: David Nguyen-Thanh; Christoph Strupat
    Abstract: This paper examines capital income taxation in Ghana. We calculate effective marginal tax rates (EMTR) and effective average tax rates (EATR) using an extended Devereux-Griffith methodology to accommodate for tax incentives - an exercise that has not been done so far for Ghana. We find that the wide range of tax incentives leads to a high variation of effective average tax rates in Ghana. Tax holidays and preferential income tax rates lower the effective tax burden to a significant extent and encourage individual tax avoidance strategies. Furthermore our results confirm previous findings that tax holidays, effectively reducing EATR, favor high-profit short-lived investment projects raising doubts about their rationale.
    Keywords: Effective tax rates; tax holidays; Ghana
    JEL: H23 H25 H10
    Date: 2012–12
  8. By: Kraft, Kornelius; Rammer,Christian; Gottschalk, Sandra
    Abstract: This paper analyses the effects of minimum wages on competition in the German roofing sector. The case is particularly interesting since this sector is faced with a uniform minimum wage despite significant regional disparities in productivity and wages. As a control industry we take the plumbing sector, which shows a similar market structure and demand trend but is not subject to a minimum wage. Employing a comprehensive firm panel data and using a difference-in-difference approach, we estimate the impacts of minimum wages on market entries and exits and firms' profitability. We find significant effects for East Germany which point to a substantial shift in industry structure. Minimum wages decreased both market entries and exits for roofing firms while they increased entries of sole traders. A decreasing number of non-sole traders lowered competition for this group of firms and helped them to increase profitability. The increasing share of sole traders may indicate some type of evasion strategy in eastern Germany, particularly since wages for skilled roofers declined towards the minimum wage. In the western part of the country minimum wages had no impact on competition. --
    Keywords: Minimum Wage,Competition,Firm Performance,Labour Market Policy,Evasion Strategy,Sole Traders
    JEL: D04 J21 J38 L11 L22 L74
    Date: 2012
  9. By: Eric V. Edmonds; Maheshwor Shrestha
    Abstract: Promoting minimum age of employment regulation has been a centerpiece in child labor policy for the last 15 years. If enforced, minimum age regulation would change the age profile of paid child employment. Using micro-data from 59 mostly low-income countries, we observe that age can explain less than 1 percent of the variation in child participation in paid employment. In contrast, child-invariant household attributes account for 63 percent of the variation in participation in paid employment. While age may explain little of the variation in paid employment, minimum age of employment regulation could simultaneously impact time allocation. We do not observe evidence consistent with enforcement of minimum age regulation in any country examined, although light work regulation appears to have been enforced in one country.
    JEL: J08 J22 J24 J80
    Date: 2012–12
  10. By: Georgarakos, Dimitris; Haliassos, Michalis; Pasini, Giacomo
    Abstract: Debt-induced crises, including the subprime crisis, are usually attributed exclusively to supply-side factors. We examine the role of social influences on debt culture, emanating from perceived average income of peers. Utilizing unique information from a household survey, representative of the Dutch population, that circumvents the issue of defining the social circle, we consider collateralized, consumer, and informal loans. We find robust social effects on borrowing - especially among those who consider themselves poorer than their peers - and on indebtedness, suggesting a link to financial distress. We employ a number of approaches to rule out spurious associations and to handle correlated effects.
    Keywords: consumer credit; household debt; Household finance; informal loans; mortgages; social interactions
    JEL: E21 G11
    Date: 2012–12
  11. By: Charles Bellemare; Bernard Fortin; Nadia Joubert; Steeve Marchand
    Abstract: Nous estimons les effets de pairs et le multiplicateur social dans la décision des entreprises de s’adonner à la fraude sociale (cotisations de sécurité sociale non déclarées et dissimulation de salariés). Les données proviennent d’une enquête menée pour 2009 par l’Agence centrale des organismes de sécurité sociale (Acoss) sur 4 241 entreprises du commerce de détail non-alimentaire en France. À partir du plan d’échantillonnage de l’enquête, les inspecteurs de l’Acoss ont contrôlé de manière aléatoire des commerces à travers toutes les régions du territoire en proportion de l’activité dans chacune des régions. L’approche théorique se fonde sur un modèle linéaire-en-moyenne. Nous supposons en outre que les entreprises interagissent en groupe dans leur décision de pratiquer la fraude sociale. Plusieurs définitions de groupe (selon l’espace géographique et le type d’entreprise) sont considérées. Deux approches économétriques sont analysées : la méthode du maximum de vraisemblance conditionnel de Lee (2007) et l’approche de variables instrumentales (VI) avec effets aléatoires fondée sur des restrictions d’exclusion. Dans nos données, l’approche de Lee, qui permet d’identifier les effets de pairs en imposant relativement peu d’hypothèses, conduit à des estimateurs qui se révèlent être peu fiables. La raison de base, confirmée par des simulations Monte Carlo, vient du fait que nous n’observons qu’une faible proportion des entreprises dans chacun des groupes échantillonnés (problème d’observabilité partielle). De plus, la correction proposée par Davezies et al. (2009) n’aide pas à améliorer les estimations. En revanche, l’approche de VI est robuste à l’observabilité partielle des groupes sociaux et peut donc être utilisée dans le cas de nos données. Nous trouvons ainsi un multiplicateur social entre 2,29 et 3,28 (selon la définition des groupes) pour la proportion d’employés dissimulés par les exploitants et entre 2,4 et 2,87 pour la proportion des établissements frauduleux.
    Keywords: , Fraude sociale, effets de pairs, multiplicateur social
    Date: 2012–12–01

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