nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2013‒09‒26
four papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. The Elasticity of Informality to Taxes and Transfers By Alonso-Ortiz, Jorge; Leal Ordonez, Julio
  2. Growth and Employment in the Dominican Republic: Options for a Job-Rich Growth By Umidjon Abdullaev; Marcello Estevao
  3. Resource Dependence and Fiscal Effort in Sub-Saharan Africa By Alun H. Thomas; Juan P. Treviño
  4. The Anatomy of the VAT By Michael Keen

  1. By: Alonso-Ortiz, Jorge; Leal Ordonez, Julio
    Abstract: In this work we study the impact on the size of the informal sector of a tax levied on formal workers, and transfers that may be distributed to both formal and informal workers alike. We build a search model that features an informal sector and we calibrate it to data from Mex- ico. We investigate whether changes in size and distribution of transfers between formal and informal workers have a significant impact on the size of the informal sector. We find that changes in the distribution, for a given size, create a range of variation of 19.35pp. Analogously, changes in size create a range of variation of 5.7pp, resulting in a total range of variation of 51.2pp. This implies that it is possible to substantially increase formalization by rising extra tax resources as long as they accrue to formal workers. We illustrate the validity of our approach simulating the introduction of Seguro Popular.
    Keywords: Informal Sector, Search, Tax and Transfer Programs, Seguro Popular
    JEL: E24 E26 E62 J64 J65
    Date: 2013–08–22
  2. By: Umidjon Abdullaev; Marcello Estevao
    Abstract: The Dominican Republic has posted high rates of output and productivity growth, but labor market indicators have remained weak during the past 20 years. This paper documents these trends, showing that the rapid productivity growth originates in a few sectors, while the bulk of job creation is concentrated elsewhere. The speed of job creation has not been enough to raise employment rates, and lackluster real earnings along with still-rampant labor market informality suggest that most of the new jobs are of low quality. Low real wages and low labor force participation suggest the need of raising market wages above fallback incomes to attract individuals to the labor force. For that, measures to improve education and reduce product market distortions would be helpful.
    Keywords: Employment;Dominican Republic;Economic growth;Labor markets;Education;Labor productivity;Labor force participation, productivity growth, inclusive growth
    Date: 2013–02–08
  3. By: Alun H. Thomas; Juan P. Treviño
    Abstract: High natural resource prices in recent years have resulted in sizeable increases in fiscal revenue for many resource-exporting countries in sub-Saharan Africa. However, this revenue source is volatile, and arguably these countries should also rely on other forms of taxation to help fund public expenditure. This paper asks whether the availability of higher resource revenue in these countries has led to lower taxation effort of other revenue categories. The question is analyzed both in terms of the relationship between non-resource tax revenue and resource revenue, and between non-resource tax revenue and statutory tax rates. The paper finds evidence suggesting that nonresource revenue is negatively influenced by a higher resource revenue-to-GDP ratio. The lower take up of nonresource taxes in resource-rich countries is correlated with higher levels of corruption in these countries, suggesting weaker institutions affect nonresource revenue through incentives for tax evasion and/or large tax exemptions as argued in the literature.
    Keywords: Revenue sources;Sub-Saharan Africa;Natural resources;Tax revenues;Taxation;Tax law, taxation, exhaustible resources, resource rich, oil, resource booms
    Date: 2013–08–28
  4. By: Michael Keen
    Abstract: This paper sets out some tools for understanding the performance of the value added tax (VAT). Applying a decomposition of VAT revenues (as a share of GDP) to the universe of VATs over the last twenty years, it emerges that developments have been driven much less by changes in standard rates than by changes in ‘C-efficiency’ (an indicator of the departure of the VAT from a perfectly enforced tax levied at a uniform rate on all consumption). Decomposing C-efficiency into a ‘policy gap’ (in turn divided into effects of rate differentiation and exemption) and a ‘compliance’ gap (reflecting imperfect implementation), results pieced together for EU members suggest that the former are in almost all cases far larger than the latter, with rate differentiation and exemptions playing roles that differ quite widely across countries.
    Keywords: Value added tax;Tax revenues;Tax rates;Value added tax, tax gaps, tax compliance
    Date: 2013–05–16

This nep-iue issue is ©2013 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.