nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2013‒04‒06
six papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Wages and informailty in developing countries By Costas Meghir; Renata Narita; Jean-Marc Robin
  2. Could informality be the solution? An instrumental variable approach on the informality of M/SE in Egypt By Nesma Magdi
  3. ‘Green’ growth, ‘green’ jobs and labour markets By Alex Bowen
  4. The Last Refuge of a Scoundrel? By Konrad, Kai A.; Qari, Salmai
  5. Fighting Multiple Tax Havens By Elsayyad, May; Konrad, Kai A.
  6. Empirical Characteristics of Legal and Illegal Immigrants in the U.S. By Caponi, Vincenzo; Plesca, Miana

  1. By: Costas Meghir (Institute for Fiscal Studies and Yale University); Renata Narita; Jean-Marc Robin (Institute for Fiscal Studies and Sciences Po)
    Abstract: It is often argued that informal labour markets in developing countries are the engine of growth because their existence allows firms to operate in an environment where wage and regulatory costs are lower. On the other hand informality means that the amount of social protection offered to workers is lower. In this paper we extend the wage-posting framework of Burdett and Mortensen (1998) to allow for two sectors of employment. Firms are heterogeneous and decide endogenously in which sector to locate. Workers engage in both off the job and on the job search and decide which offers to accept. Direct transitions across sectors are permitted, which matches the evidence in the data about job mobility. Our empirical analysis uses Brazilian labour force surveys. We use the model to discuss the relative merits of alternative policies towards informality. In particular, we evaluate the impact of a tighter regulatory framework on employment in the formal and the informal sector on the distribution of wages.
    Date: 2013–03
  2. By: Nesma Magdi (UP1 UFR02 - Université Paris 1, Panthéon-Sorbonne - UFR d'Économie - Université Paris I - Panthéon-Sorbonne)
    Abstract: The expansion of the informal sector constitutes one of the major issues in Egypt. Yet, micro and small enterprises (M/SEs) proved their important role on the social and economic level, but most of them are running on an informal basis. That's why this paper tries to estimate the impact of informality on the performance of M/SEs. Relying on an instrumental variable approach, the results showed that the higher is the probability of operating in the formal sector, the higher is the productivity of the firm. This effect is subject to the realization of a specific channel, which accounts for the characteristics of the firm, the entrepreneur and all the constraints faced by the firm. These findings highlight the importance of formalization policies to reduce the expansion of the informal sector.
    Keywords: Égypte, productivité, économie souterraine, micro-entreprises
    Date: 2012–06
  3. By: Alex Bowen
    Abstract: The term ‘green jobs’ can refer to employment in a narrowly defined set of industries providing environmental services. But it is more useful for the policy-maker to focus on the broader issue of the employment consequences of policies to correct environmental externalities such as anthropogenic climate change. Most of the literature focuses on direct employment created, with more cursory treatment of indirect and induced job creation, especially that arising from macroeconomic effects of policies. The potential adverse impacts of green growth policies on labour productivity and the costs of employment tend to be overlooked. More attention also needs to be paid in this literature to how labour markets work in different types of economy. There may be wedges between the shadow wage and the actual wage, particularly in developing countries with segmented labour markets and after adverse aggregate demand shocks, warranting a bigger and longer-lasting boost to green projects with high labour content. In these circumstances, the transition to green growth and job creation can go hand in hand. But there are challenges, especially for countries that have built their industrial development strategies around cheap carbon-based energy. Induced structural change, green or otherwise, should be accompanied by active labour market policies.
    Date: 2012–04
  4. By: Konrad, Kai A.; Qari, Salmai
    Abstract: We study the effects of patriotism on tax compliance. In particular, we assume that individuals feel a (random draw of) warm glow from honestly paying their taxes. A higher expected warm glow reduces the government's optimal audit probability and yields higher tax compliance. Second, individuals with higher warm glow are less likely to evade taxes. This prediction is confirmed empirically by a multivariate analysis on the individual level while controlling for several other potentially confounding factors. The findings survive a variety of robustness checks, including an instrumental variables estimation to tackle the possible endogeneity of patriotism. On the aggregate level, we provide evidence for a negative correlation between average patriotic warm glow and the size of the shadow economy across several countries.
    Abstract: Ob ein Individuum versucht, durch falsche Angaben gegenüber den Steuerbehörden die persönliche Steuerlast zu reduzieren, hängt sowohl von "monetären" als auch von nicht-monetären Faktoren ab. Monetäre Faktoren sind vor allem die Wahrscheinlichkeit, mit der ein versuchter Betrug aufgedeckt wird, und die Höhe der Strafzahlung. Wir untersuchen zunächst theoretisch, wie Patriotismus (Heimatbindung) als ein nicht-monetärer Faktor die Steuerehrlichkeit beeinflusst. Personen mit gleichem Einkommen, aber höherer Heimatbindung, geben auch mit höherer Wahrscheinlichkeit ihr Einkommen korrekt an. Weiterhin führt eine Erhöhung der durchschnittlichen Heimatbindung über die gesamte Steuerbevölkerung dazu, dass im Gleichgewicht der Anteil der Steuerhinterzieher geringer wird. Diese beiden Hypothesen werden empirisch mit Hilfe von Surveydaten überprüft und bestätigt. Für die erste Hypothese auf Ebene des Individuums erlauben es die Daten, die Robustheit des empirischen Ergebnisses umfangreich zu überprüfen. Eine Vielzahl von Spezifikationen, inklusive einer Instrumentvariablenschätzung, bestätigen den positiven Zusammenhang zwischen Heimatbindung und (der Einstellung zur) Steuerehrlichkeit.
    Keywords: Patriotism; tax evasion; warm glow
    Date: 2012
  5. By: Elsayyad, May; Konrad, Kai A.
    Abstract: This paper develops a competition theory framework that evaluates an important aspect of the OECD’s Harmful Tax Practices Initiative against tax havens. We show that the sequential nature of the process is harmful and more costly than a “big bang” multilateral agreement. The sequentiality may even prevent the process from being completed successfully. Closing down a subset of tax havens reduces competition among the havens that remain active. This makes their “tax haven business” more profitable and shifts a larger share of rents to these remaining tax havens, making them more reluctant to give up their “tax haven business”. Moreover, the outcome of this process, reducing the number of tax havens, but not eliminating them altogether, may reduce welfare in the OECD.
    Keywords: tax haven; harmful tax practices; bidding for haven inactivation
    Date: 2012
  6. By: Caponi, Vincenzo (Ryerson University); Plesca, Miana (University of Guelph)
    Abstract: We combine the New Immigrant Survey (NIS), which contains information on US legal immigrants, with the American Community Survey (ACS), which contains information on legal and illegal immigrants to the U.S. Using econometric methodology proposed by Lancaster and Imbens (1996) we compute the probability for each observation in the ACS data to refer to an illegal immigrant, conditional on observed characteristics. The results for illegal versus legal immigrants are novel, since no other work has quantified the characteristics of illegal immigrants from a random sample. We find that, compared to legal immigrants, illegal immigrants are more likely to be less educated, males, and married with their spouse not present. These results are heterogeneous across education categories, country of origin (Mexico) and whether professional occupations are included or not in the analysis. Forecasts for the distribution of legal and illegal characteristics match aggregate imputations by the Department of Homeland Security. We find that, while illegal immigrants suffer a wage penalty compared to legal immigrants, returns to higher education remain large and positive.
    Keywords: legal immigrants, illegal immigrants, contaminated controls
    JEL: J15 F22
    Date: 2013–03

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