nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2013‒07‒15
nine papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Lurking in the Cities: Urbanization and the Informal Economy By Ceyhun Elgin; Cem Oyvat
  2. A new estimation of the size of informal economy using monetary and full expenditures in a complete demand system By Armagan Tuna Aktuna Gunes; Christophe Starzec; François Gardes
  3. Labour Market Policies to Promote Growth and Social Cohesion in Korea By Randall S. Jones; Satoshi Urasawa
  4. Heterogeneous Self-employment and Subjective Well-Being. Evidence from Latin America By Cortés Aguilar Alexandra; Teresa Garcia-Muñoz; Ana I. Moro Egido
  5. Is Tax Compliance a Social Norm? A Field Experiment By Pietro Battiston; Simona Gamba
  6. No Taxation without Information: Deterrence and Self-Enforcement in the Value Added Tax By Dina Pomeranz
  7. Does migration threaten the sustainability of European welfare states? By Peter Huber; Doris A. Oberdabernig
  8. Informal or formal financing? Or both? First evidence on the co-funding of Chinese firms By Degryse, Hans; Lu, Liping; Ongena, Steven
  9. Inferring labor income risk and partial insurance from economic choices By Fatih Guvenen; Anthony Smith

  1. By: Ceyhun Elgin; Cem Oyvat
    Date: 2013–10
  2. By: Armagan Tuna Aktuna Gunes (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Christophe Starzec (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); François Gardes (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: We use the demand system approach to estimate the size of informal economy in Turkey following the methodology based on the analysis of the individual consumption behaviour proposed by Pissarides, Weber (1989), Lyssiotou et al. (2004), and Fortin et al. (2009). We extend this method by taking into account both the monetary expenditures and time spent on domestic activities. The necessary information of money and time inputs in consumption on the household's level is obtained by statistical match of Turkish Family Budget and Time Use surveys (2006). As expected, the estimated model size of the informal economy in Turkey using the full (time plus money) expenditure is higher than those obtained by only monetary approach (in average 40.6% and 33.5% of GDP respectively) and also higher than obtained by more conventional macroeconomic methods (for example 35.1% by Schneider in 2005 with DYMIMIC model).
    Keywords: Informal economy; complete demand system; time use full expenditures
    Date: 2013–06
  3. By: Randall S. Jones; Satoshi Urasawa
    Abstract: Labour market reform to improve growth prospects and reduce inequality is a top priority in the face of rapid population ageing and a dualistic labour market. Sustaining output growth requires policies to mitigate the impact of rapid population ageing by increasing labour inputs from under-employed segments of the population. In particular, female labour participation should be encouraged by better work-life balance and increasing the availability of highquality, affordable childcare. More flexible employment and wage systems would increase the age at which older workers leave firms. For young people, improved vocational education at the secondary and tertiary levels would help overcome the labour mismatch and the overemphasis on tertiary education. Labour market dualism creates serious equity concerns, as non-regular workers face significantly lower wages, precarious jobs, less coverage by social security and less training. A comprehensive approach is required to break down dualism, including reduced employment protection for regular workers, alongside improved social insurance coverage and expanded training for non-regular workers. This Working Paper relates to the 2012 OECD Economic Survey of Korea (<P>Réformer le marché du travail pour stimuler la croissance et améliorer la cohésion sociale en Corée<BR>La réforme du marché du travail pour améliorer les perspectives de croissance et réduire les inégalités est une priorité absolue face au vieillissement rapide de la population et à un marché du travail dual. Pour soutenir la croissance de la production, les autorités coréennes doivent prendre des mesures pour compenser les effets du vieillissement de la population, en renforçant l’apport de travail des catégories de population sous-employés. Il convient notamment de renforcer le taux d’activité des femmes, en leur assurant des conditions d’emploi permettant de mieux concilier vie professionnelle et vie privée et en améliorant l’offre de services de garde de qualité et à moindre coût. Une plus grande flexibilité des systèmes d’emploi et de rémunération permettrait aux travailleurs âgés de poursuivre leur activité professionnelle. Quant aux jeunes, l’amélioration de la formation professionnelle dans le secondaire et le supérieur contribuerait à résoudre les problèmes d’adéquation entre offre et demande de compétences et de survalorisation de l'enseignement supérieur. Le dualisme engendre de graves problèmes d’équité, car les travailleurs temporaires perçoivent des salaires nettement inférieurs, occupent des emplois précaires, bénéficient d’une couverture sociale plus limitée et d’un moindre accès à la formation. Il faut adopter une approche globale pour briser le dualisme, notamment en réduisant la protection de l’emploi pour les travailleurs réguliers, en améliorant la couverture sociale pour les travailleurs non réguliers et en développant les formations offertes à ces travailleurs. Ce Document de travail se rapporte à l’Étude économique de l’OCDE de la Corée, 2012 (
    Keywords: Korea, dualism, employment protection, labour force participation rates, female employment, vocational training, non-regular workers, part-time workers, older workers, work-life balance, labour market, fertility rate, Korean economy, dispatched workers, fixed-term contracts, Corée, taux de participation, travailleurs âgés, dualisme, protection de l'emploi, travailleurs non réguliers, formation professionnelle, travailleurs à temps partiel, activité des femmes, taux de fécondité, équilibre entre travail et vie familiale, travailleurs intérimaires, contrats à durée déterminée, marchés du travail
    JEL: J11 J3 J5 J7
    Date: 2013–06–27
  4. By: Cortés Aguilar Alexandra (Escuela de Economía y Administración, Universidad Industrial de Santander.); Teresa Garcia-Muñoz (Globe and Universidad de Granada.); Ana I. Moro Egido (Department of Economic Theory and Economic History, University of Granada.)
    Abstract: This paper analyzes the relationship between labor status and individual satisfaction in Latin America. Existing evidence for developed countries shows that the self-employed report higher job satisfaction than the employed. The evidence, however, is less conclusive in terms of lifesatisfaction. Moreover, for Latin American countries, the evidence shows that self-employed individuals report lower life-satisfaction than employed individuals do. To clarify the effect of selfemployment on satisfaction, we use the Latinobarómetro survey 2007 for eighteen Latin American and Caribbean countries, considering the category self-employment as a heterogeneous category. Additionally, we control for the distinction between necessity and opportunity self-employed. Contrary to existing evidence, we find that not all self-employed individuals are more satisfied than employed individuals. Specifically, we find evidence revealing that, compared to workers in paid employment (i) precarious self-employed workers are as satisfied as the employed with their life but less with job and household income; (ii) self-employed professionals are more satisfied than the employed only with their incomes; (iii) business owners are more satisfied with their lives, income and job; and (iv) self-employed famers and fisherman are less satisfied with their jobs and income.
    Keywords: Labor informality, voluntary vs. involuntary self-employment,life and job satisfaction
    JEL: C25 I31 J24 J28 O17
    Date: 2013–06–25
  5. By: Pietro Battiston; Simona Gamba
    Abstract: We study the effect of social pressure on tax compliance, focusing on the compliance of shop sellers to the legal obligation of releasing tax receipts for each sale. We carry out a field experiment on bakeries in Italy, where a strong gap exists between the legal obligation and the actual behavior of sellers. Social pressure is manipulated by means of an explicit request for a receipt when not released. We find that a single request for a receipt causes a 17 per cent rise in the probability of a receipt being released for a sale occurring shortly thereafter. This provides evidence of a social scal multiplier: on average, a single request for a receipt causes 2.38 additional receipts being released overall.
    Keywords: Tax evasion, field experiments, social norms, social pressure
    JEL: H32 K34 E62
    Date: 2013–07
  6. By: Dina Pomeranz
    Abstract: Tax evasion generates billions of dollars of losses in government revenue and creates large distortions, especially in developing countries. Claims that the VAT facilitates tax enforcement by generating paper trails on transactions between firms have contributed to widespread VAT adoption worldwide, but there is little empirical evidence about this mechanism. This paper analyzes the role of third party information for VAT enforcement through two randomized experiments among over 400,000 Chilean firms. Announcing additional monitoring has less impact on transactions that are subject to a paper trail, indicating the paper trail's preventive deterrence effect. Tax enforcement leads to strong spillovers up the VAT chain, increasing compliance by firms' suppliers. These findings confirm that when evasion is taken into account, significant differences emerge between otherwise equivalent forms of taxation.
    JEL: H25 H26 O17 O23
    Date: 2013–07
  7. By: Peter Huber; Doris A. Oberdabernig
    Abstract: We investigate the relative contributions of migrant and native households to welfare states. Using two step Oaxaca-Blinder decompositions that control for selection into benet take-up, we are able to identify the individual variables contributing to dierences in welfare receipt by native and migrant households. We nd that most of the dierences are explained by observable characteristics such as size of the household as well as age and education of its head and income in some countries. In contrast, signicantly lower net contributions of migrant households to the state budget persist in many countries even after controlling for observable factors. The reasons for this are primarily lower tax payments of migrant households. Selective migration and sound integration policies and as well as policies avoiding marginalization of migrants in informal labor markets are therefore the most eective means to avoid scal burdens of migration.
    Keywords: Oaxaca-Blinder decomposition, EU-countries, migration, net contributions, welfare state
    JEL: J61 J15 H53 I38
    Date: 2013–07
  8. By: Degryse, Hans (BOFIT); Lu, Liping (BOFIT); Ongena, Steven (BOFIT)
    Abstract: The recent financial crisis has reopened the debate on the impact of informal and formal finance on firm growth in developing countries. Using unique survey data, we find that informal finance is associated with higher sales growth for small firms and lower sales growth for large firms. We identify a complementary effect between informal and formal finance for the sales growth of small firms, but not for large firms. Informal finance offers informational and monitoring advantages, while formal finance offers relatively inexpensive funds. Co-funding, i.e. the simultaneous use of formal and informal finance, is the optimal choice for small firms.
    Keywords: informal finance; formal finance; co-funding; growth
    JEL: G21 G32 P29
    Date: 2013–06–18
  9. By: Fatih Guvenen; Anthony Smith
    Abstract: This paper uses the information contained in the joint dynamics of individuals’ labor earnings and consumption-choice decisions to quantify both the amount of income risk that individuals face and the extent to which they have access to informal insurance against this risk. We accomplish this task by using indirect inference to estimate a structural consumption-savings model, in which individuals both learn about the nature of their income process and partly insure shocks via informal mechanisms. In this framework, we estimate (i) the degree of partial insurance, (ii) the extent of systematic differences in income growth rates, (iii) the precision with which individuals know their own income growth rates when they begin their working lives, (iv) the persistence of typical labor income shocks, (v) the tightness of borrowing constraints, and (vi) the amount of measurement error in the data. In implementing indirect inference, we find that an auxiliary model that approximates the true structural equations of the model (which are not estimable) works very well, with negligible small sample bias. The main substantive findings are that income shocks are not very persistent, systematic differences in income growth rates are large, individuals have substantial amounts of information about their income growth rates, and about one-half of income shocks are effectively smoothed via partial insurance. Putting these findings together, we argue that the amount of uninsurable lifetime income risk that individuals perceive is substantially smaller than what is typically assumed in calibrated macroeconomic models with incomplete markets.
    Keywords: Labor economics ; Income
    Date: 2013

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