nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2013‒11‒16
twelve papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Liberalization and "Jobless Growth" in a Developing Economy: some Extended Results By Soumyatana Mukherjee
  2. Intergenerational Transmission of Self-Employed Status in the Informal Sector: A Constrained Choice or Better Income Prospects? Evidence from seven West-African Countries By Pasquier-Doumer, Laure
  3. Do Nations Combine O-Rings with Cobb-Douglas? Evidence from agriculture, equipment production, and the informal sector By Oasis, Kodila-Tedika
  4. In search of inclusion: informal sector participation in a voluntary, defined contribution pension system By Renuka Sane; Susan Thomas
  5. A systemic analysis of land markets and land institutions in West African cities : rules and practices -- the case of Bamako, Mali By Durand-Lasserve, Alain; Durand-Lasserve, Maylis; Selod, Harris
  6. The effect of awareness and incentives on tax evasion By Alstadsæter, Annette; Jacob, Martin
  7. The indirect effects of auditing taxpayers By Ratto, Marisa; Thomas, Richard; Ulph, David
  8. Who participates in tax avoidance? By Alstadsæter, Annette; Jacob, Martin
  9. Firm valuation and the uncertainty of future tax avoidance By Jacob, Martin; Schütt, Harm
  10. Exchange of Information and Validity of Global Standards in Tax Law: Abstractionism and Expressionism or Where the Truth Lies By Ana Paula Dourado
  11. Tax reforms in EU Member States - Tax policy challenges for economic growth and fiscal sustainability – 2013 Report By European Commission
  12. Efeitos dos Pisos salariais Estaduais Sobre o Mercado de Trabalho: Uma Nova Abordagem Empírica By Carlos Henrique Corseuil; Miguel Foguel; Marcos Hecksher

  1. By: Soumyatana Mukherjee
    Abstract: This paper, in terms of a three-sector mobile capital version of Harris-Todaro type general equilibrium model of rural-urban migration with agricultural dualism and a non-traded intermediate input, tries to theoretically explain why a developing country may experience a ‘jobless growth’ during liberalised regime as suggested by empirical evidences. I have considered impacts of trade liberalization (captured by a tariff-reform in the protected importcompeting sector) and liberalization of labour laws (captured by a reduction in the bargaining strength of the labour unions). These findings are particularly interesting for their contradiction to the predictions of standard Harris-Todaro model.
    Keywords: Trade Liberalization; Labour Market Reform; Agricultural Dualism; Jobless Growth; Non-traded Intermediate Input; Urban Unemployment.
    Date: 2013
  2. By: Pasquier-Doumer, Laure
    Abstract: This paper aims at highlighting the debate on firm heterogeneity in the informal sector by testing whether entrepreneurial familial background impacts informal businesses outcomes in the West African context. In the USA, a literature aiming at understanding the high intergenerational correlation of the self-employed status shows that children of self-employed have better business performance than children of wage earners. However, it is not obvious that this result could be generalised to developing countries. Using 1-2-3 surveys collected in the commercial capitals of seven West African countries in 2001–02, this paper shows that children of self-employed, who own an informal business, do not have better business outcomes than children of wage earners, except when they choose a familial tradition in the same sector of activity. Thus, in the West African context, having a self-employed father seems not sufficient for the transmission of valuable skills and does not provide any advantage in terms of value added or sales if the activity is different from that of the father. On the other hand, informal entrepreneurs who have chosen a specific enterprise based on familial tradition have a competitive advantage. Their competitive advantage is partly explained by the transmission of enterprise-specific human capital, acquired through experiences in the same type of activity and by the transmission of social capital that guarantees a better clientele and a reputation.
    Keywords: informal sector; Entrepreneurship; Intergenerational link; Human capital; secteur informel; entreprenariat; lien intergénérationnel; capital humain;
    JEL: L26 J24 J62
    Date: 2013
  3. By: Oasis, Kodila-Tedika
    Abstract: The article focuses on the conditional relationship between various human capital proxies and the size of potential “O-Ring” or “Cobb-Douglas” sectors. We find that that years of schooling are a robust negative predictor of the size of the informal sector, conditioned on national average test scores, suggests that the signaling and acculturation mechanisms of schooling may help shift potentially productive workers into the formal economy.
    Keywords: Intelligence, Human capital; Strategic complementarities, productivity
    JEL: I21 J24
    Date: 2013–11–09
  4. By: Renuka Sane (Indian Statistical Institute, New Delhi); Susan Thomas (Indira Gandhi Institute of Development Research)
    Abstract: This paper examines who contributes and who persists in contributing in a national, voluntary, defined contributory pension program, where the government provides the incentive of matching contributions of a minimum amount (USD 16). The paper uses proprietary data from a financial services firm where 12 percent of customers (37000 individuals) chose to participate in this program. The evidence shows that only about 50 percent of contributors reach the minimum amount for the co-contribution, but that participants persist in contributing even if they failed to contribute the minimum amount in a given year. While this paper does not provide causal estimates, it does present evidence of considerable interest among the informal sector in a state-run voluntary pension program in an emerging market where access to formal finance is otherwise poor.
    Keywords: informal sector workers, pension accounts, matched defined contribution
    JEL: H55 G11 D14
    Date: 2013–10
  5. By: Durand-Lasserve, Alain; Durand-Lasserve, Maylis; Selod, Harris
    Abstract: This paper presents a new type of land market analysis relevant to cities with plural tenure systems as in West Africa. The methodology hinges on a systemic analysis of land delivery channels, which helps to show how land is initially made available for circulation, how tenure can be formalized incrementally, and the different means whereby households can access land. The analysis is applied to the area of Bamako in Mali, where information was collected through (i) interviews with key informants, (ii) a literature review on land policies, public allocations, and customary transfers of land, (iii) a press review on land disputes, and (iv) a survey of more than 1,600 land transfers of un-built plots that occurred between 2009 and 2012. The analysis finds that land is mostly accessed through an informal customary channel, whereby peri-urban land is transformed from agricultural to residential use, and through a public channel, which involves the administrative allocation of residential plots to households. The integrated analysis of land markets and land institutions stresses the complexity of procedures and the extra-legality of practices that strongly affect the functioning of formal and informal markets and make access to land costly and insecure, with negative social, economic, and environmental impacts over the long term.
    Keywords: Urban Housing,Public Sector Management and Reform,Municipal Housing and Land,National Urban Development Policies&Strategies,Urban Housing and Land Settlements
    Date: 2013–11–01
  6. By: Alstadsæter, Annette; Jacob, Martin
    Abstract: We observe a specific type of tax evasion among business owners in Swedish administrative panel data, after the tax authority has approved all tax returns. For the period 2006-2009, approximately 5% of tax returns overstate a claimed dividend allowance. Tax awareness decreases and complexity increases the likelihood of misreporting. Some observed misreporting could be accidental, while some misreporting is deliberate tax evasion. We identify a positive and significant effect of tax rates on tax evasion, by exploiting a large kink in the tax schedule. The majority of misreporting cases remains undetected. Self-correction is the dominant type of detection. --
    Keywords: tax evasion,tax compliance,tax enforcement,tax awareness,detection
    JEL: H26 H24 D14
    Date: 2013
  7. By: Ratto, Marisa; Thomas, Richard; Ulph, David
    Abstract: In this paper we focus on the effects of investigations on tax compliance. Results from empirical studies suggest that the effects of audits are not only in terms of recovered unpaid tax (direct effects), but there are also indirect effects in terms of future better compliance in the rest of the community. The evidence suggests that such indirect effects tend to outweigh the direct effect. However, current policy decisions of how to allocate investigation resources across different groups of taxpayers generally neglect the indirect effects, generating a potential resource misallocation issue. With the aim to clarify a possible mechanism through which the indirect effects work and hence to inform any policy recommendations, we model tax compliance as a social norm and decompose the total effect of an increase in the audit probability into a direct effect (increased expected fine) and a multiplier effect due to taxpayers’ interdependencies.
    Keywords: optimal audit rule; tax evasion; social norm; opportunities to evade;
    JEL: D81 H26 H30 K42
    Date: 2013–05
  8. By: Alstadsæter, Annette; Jacob, Martin
    Abstract: This paper analyzes the sources of heterogeneity in legal tax avoidance strategies across individuals. Three conditions are required for a taxpayer to participate in tax avoidance: incentive, access, and awareness. Using rich Swedish administrative panel data with a unique link between corporate and individual tax returns, we analyze individual participation in legal tax planning around the 2006 Swedish tax reform. Our results suggest that closely held corporations are utilized to facilitate income shifting across tax bases to reduce the individual's overall tax burden. We find that both tax incentives and awareness of tax incentives impact the decision to access income-shifting opportunities. Our results show that factors explaining participation in legal tax avoidance substantially differ from those explaining participation in illegal tax evasion. --
    Keywords: Tax avoidance,Income shifting,Income taxation,Dividend taxation
    Date: 2013
  9. By: Jacob, Martin; Schütt, Harm
    Abstract: The paper studies the effect of uncertainty in tax avoidance on firm value. We first show in a clean surplus valuation model that expected tax rates interact with expectations about future profitability. This paper builds and tests a valuation framework that incorporates two outcome dimensions of corporate tax avoidance strategies: the stability and the level of expected tax rates. We develop a tax planning score that captures these two dimensions. The measure improves the prediction of future tax avoidance. We finally show that the tax planning score strengthens the effect of pre-tax earnings on firm value. Firms with effective and persistent tax planning have a stronger effect of pre-tax earnings on firm value while firms with poor tax planning or volatile effective tax rates receive a discount on their earnings. --
    Keywords: firm valuation,tax avoidance,tax uncertainty
    JEL: M41 G12 H25
    Date: 2013
  10. By: Ana Paula Dourado
    Abstract: This paper analyses the question on whether a Hercules legislator would validly propose a global standard, in particular, exchange of information between tax officials and those taxpayers who have a connection with one of the countries involved. This suggestion covers tax matters, including tax crimes, and is being put forward by the Global Forum.In recent decades, a global legal discourse has spread, but this trend has also been confronted with the acknowledgment that plural legalities coexist in domestic boundaries. Validity of a tax reform implies taking into account binding non-state and supra-state legalities.Individual legalities in force in a certain state are the cause of an important tension, and can result in important obstacles to the validity of state law, if the latter is not the product of argumentative interaction. The risk that such interaction does not exist is higher in the case of supra-national legalities, as is the case of exchange of information.It is herein claimed that a Hercules legislator would propose exchange of information on tax matters as an international standard, as long as the taxpayers’ fundamental rights as acknowledged in rule-of-law states are not jeopardized. It is also suggested that transitional regimes should be adopted in respect of some States.
    Date: 2013–03–19
  11. By: European Commission (European Commission)
    Abstract: The 2013 edition of the report ‘Tax reforms in EU Member States’ contributes to the tax policy debate in the EU. Compared to previous editions, the report has been streamlined with a stronger focus on the Member State level. The report consists of two parts: (i) an extensive overview of recent tax reforms, and (ii) a discussion of selected tax policy challenges relevant for improving Member States’ tax systems in two analytical chapters. The chapter on recent tax reforms identifies common trends across countries and offers a typology of reforms consistent with the main messages of the European Semester. The first analytical chapter focuses on two wide ranging challenges that EU Member States are facing in the area of tax policy in times of slow growth and high fiscal consolidation needs: the potential contribution of taxation to consolidate public finances – in addition to expenditure control – and the growth-friendliness of the tax structure. Beside updating and refining last year's horizontal screening, various checks have been carried out to see how robust the results are. The second analytical chapter deals with economic challenges that EU Member States are facing with respect to the design of individual taxes and tax compliance. It deepens the analysis of tax expenditure with particular insights on personal income taxation and examines the debt bias in corporate taxation, notably its effects on banks’ capital structures. Applying an indicator-based approach, the report then provides an update of the analysis carried out in previous years on broadening the VAT base, on housing taxation, on environmental taxation and on improving tax governance. Finally, the chapter analyses the influence of taxation on income inequality.
    Keywords: European Union, Taxation, European Semester, VAT, Coporpotate income tax, tax administration, tax reform
    JEL: H21 H22 H23 H25 H27 H62
    Date: 2013–10
  12. By: Carlos Henrique Corseuil; Miguel Foguel; Marcos Hecksher
    Abstract: Este trabalho avalia os efeitos dos pisos salariais introduzidos no Paraná e em São Paulo sobre alguns indicadores do mercado de trabalho. Em ambas as Unidades da Federação (UFs), são analisados três grupos ocupacionais distintos com base nos dados da Pesquisa Nacional por Amostra de Domicílios (PNAD) do Instituto Brasileiro de Geografia e Estatística (IBGE). Conclui-se que, em um dos grupos de cada UF, a política aumentou a remuneração de trabalhadores que receberiam menos que os respectivos pisos caso estes não tivessem sido criados, sem se contrair o emprego ou se aumentar a informalidade. Em particular, a taxa de emprego parece ter até reagido de forma positiva nestes dois grupos. Nos demais agregados ocupacionais, não foi encontrado qualquer efeito significativo da legislação. A maior contribuição deste trabalho é a utilização de uma nova metodologia mais apropriada para identificar efeitos de tratamento em unidades agregadas, apresentada por Abadie, Diamond e Hainmueller (2010). This paper aims to evaluate the introduction of Brazilian regional and occupational wage floors on labor market performance. We focus on two out of five states that implemented such policy intervention, which are Paraná and São Paulo. In each region, we have analyzed data for three distinct occupational categories. Our results point that one occupational group in each region seems to be affected by the introduction of a wage floor. In both cases, the wage floor tends to lower the share of employees with wages below the floor, without producing side effect neither on employment nor on informality. In particular, employment appears to have reacted positively. It was found no significant effect of the legislation in the other occupational groups. We innovate on methodological grounds by using the synthetic control method due to Abadie, Diamond and Hainmueller (2010).
    Date: 2013–10

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