nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2014‒03‒30
nine papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Corruption and Informality: Complements or Substitutes? Qualitative Evidence from Barranquilla, Colombia By Mehling, Maxie-Lina; Boehm, Frédéric
  2. Inputs, Gender Roles or Sharing Norms? Assessing the Gender Performance Gap Among Informal Entrepreneurs in Madagascar By Nordman, Christophe Jalil; Vaillant, Julia
  3. Estimating Workforce Disposal in the Italian Labour Market By Contini, Bruno; Grand, Elisa
  4. Wage Incentive Profiles in Dual Labor Markets By Marco Di Cintio; Emanuele Grassi
  5. Prospect theory and tax evasion: a reconsideration of the Yitzhaki puzzle By Amedeo Piolatto; Matthew D. Rablen
  6. Taxing hard-to-tax markets By Arbex, Marcelo; Mattos, Enlinson; Ogura, Laudo M.
  7. Itemised deductions: a device to reduce tax evasion By Amedeo Piolatto
  8. We all do it, but are we willing to admit? Incentivizing digital pirates' confessions By Anna Kukla-Gryz; Michał Krawczyk; Konrad Siwiński; Joanna Tyrowicz
  9. Une évaluation de la taille de l'économie informelle par un système complet de demande estimé sur données monétaires et temporelles. By Armagan Tuna Aktuna-Gunes; Christophe Starzec; François Gardes

  1. By: Mehling, Maxie-Lina; Boehm, Frédéric
    Abstract: We present results of a qualitative study based on interviews with informal vendors and experts on informality carried out in Barranquilla, Colombia, in order to investigate whether corruption and informality are complements or substitutes. It was found that it is necessary to distinguish between bureaucratic and political corruption when examining the relation with informality, as the results can be opposite. In Barranquilla, bureaucratic corruption and informality seem to be substitutes, while political corruption and informality complement each other.
    Keywords: Corruption, Informality, Colombia
    JEL: K42 O17
    Date: 2014–03
  2. By: Nordman, Christophe Jalil (IRD, DIAL, Paris); Vaillant, Julia (World Bank)
    Abstract: We use a representative sample of informal entrepreneurs in Madagascar to add new evidence on the magnitude of the gender performance gap. After controlling for business and entrepreneur characteristics, female-owned businesses exhibit a value added 28 percent lower than their male counterparts. Correcting for endogenous selection into informal self-employment raises the gap by 5 percentage points. We then investigate the role of sharing norms and gender-differentiated allocation of time within the household in the gender performance gap, by estimating their effect on the technical inefficiency of female and male entrepreneurs. Only male entrepreneurs seem subject to pressure to redistribute from the distant network. Our findings are consistent with situations where women working at home would essentially feel negatively the burden of their own community due to intense social norms and obligations in their workplace but also of domestic chores and responsibilities. We find evidence of females self-selecting themselves into industries in which they can combine market-oriented and domestic activities.
    Keywords: gender, entrepreneurship, informal sector, sharing norms, household composition, Madagascar
    JEL: D13 D61 O12 J16
    Date: 2014–03
  3. By: Contini, Bruno (LABORatorio R. Revelli); Grand, Elisa (LABORatorio R. Revelli)
    Abstract: Italy's labour market suffers from a serious pathology, in addition to the increasing precariousness of the young workforce common to all EU member countries: flows from regular employment to non-employment are very often dead-ends. A vast number of young individuals who lose their job only a few months or years after their first hire enter the ranks of the long-term unemployed or leave the workforce altogether, never to regain regular employment even after as long as twenty years. Many join the ranks of the irregular economy, many drop out of the labour force. "Workforce disposal" refers to the process generating this pathology. Prolonged stagnation of the Italian economy is an important long run macroeconomic determinant of workforce disposal. But there are several factors that have an important impact in the short and medium run. In this study we set out to investigate such determinants. Workforce disposal is present also in Spain, though to a lesser extent than Italy. Informed media report that similar developments are taking place also in countries of Eastern Europe, although no scientific evidence is yet available. And it would be surprising if the economies of Portugal and Greece were immune from the disease. Our exploration of the Italian case makes use of the WHIP longitudinal database originating from Social Security records.
    Keywords: unemployment, youth employment and participation, mobility, workforce
    JEL: J J2 J08 J20 J6 J63 J64
    Date: 2014–03
  4. By: Marco Di Cintio (Department of Management, Economics, Mathematics and Statistics, University of Salento, Italy); Emanuele Grassi (Department of Management, Economics, Mathematics and Statistics, University of Salento, Italy)
    Abstract: This paper formalizes the use of flexible labor contracts in an efficiency wage framework and derives market dualism as an endogenous outcome. By allowing temporary contracts to be either renewed or converted into permanent contracts, new theoretical insights emerge both on the equilibrium wage structure and the incentive problem faced by workers and firms. Since temporary workers weigh the outside option of entering the labor market through permanent positions, the rate at which fixed-term contracts are converted into open-ended contracts is itself an incentive device which acts as a substitute for the wage. It follows that, even if temporary workers face a higher job loss risk, firms pay a wage differential in favor of permanent workers. The model also predicts that in equilibrium firms hire exclusively under flexible contracts, then half of them is converted into stable contracts while the remaining contracts are left to expire. Thus, in steady state, firms let permanent positions to survive in order to sustain the wage incentive structure.
    Keywords: Dual Labor Market, Efficiency Wages, Wage Differentials, Flexible Contracts
    JEL: J31 J41 J63
    Date: 2014–03
  5. By: Amedeo Piolatto (Universitat de Barcelona & IEB); Matthew D. Rablen (Brunel University)
    Abstract: The standard expected utility model of tax evasion predicts that evasion is decreasing in the marginal tax rate (the Yitzhaki puzzle). The existing literature disagrees on whether prospect theory overturns the puzzle. We disentangle four distinct elements of prospect theory and find loss aversion and probability weighting to be redundant in respect of the puzzle. Prospect theory fails to reverse the puzzle for various classes of endogenous specification of the reference level. These classes include, as special cases, the most common specifications in the literature. New specifications of the reference level are needed, we conclude.
    Keywords: Prospect theory, tax evasion, Yitzhaki puzzle, stigma, diminishing sensitivity, reference dependence, endogenous audit probability, endogenous reference level
    JEL: H26 D81 K42
    Date: 2014
  6. By: Arbex, Marcelo; Mattos, Enlinson; Ogura, Laudo M.
    Abstract: Tax enforcement costs constrain the government s ability to observe economic transac-tions, giving rise to hard-to-tax (HTT) markets. In these markets transactions are untaxedand consumers are better o¤ than in taxed markets. This paper studies a novel approachto combat evasion in HTT markets: consumer auditing, which rewards consumers for re-questing transaction receipts. We develop a Hotelling-type spatial model of sales taxationto analyze the welfare and distributional e¤ects of the implementation of this policy. We nd that consumer auditing allows for a lower tax rate and greater provision of the publicgood in the economy. We show that this policy not only can enhance welfare, but alsoequalize utilities of consumers across markets
    Date: 2014–02–12
  7. By: Amedeo Piolatto (Universitat de Barcelona & IEB)
    Abstract: With direct incentives and sanctions being the most common instruments to fight tax evasion, the theoretical literature has tended to overlook indirect schemes, such as itemised deductions, in which one agent has an interest in other agents declaring their revenue. Itemised deductions provide an incentive for consumers to declare their purchases, and this forces sellers to do the same. I show that it is possible to increase tax proceeds by choosing a suitable level of itemised deduction, and this, for any level of taxation. Indeed, the cost for the government on the consumers' side is more than compensated for by the extra proceeds generated on the sellers' side.
    Keywords: Tax evasion, itemised deductions, substitute goods, duopoly
    JEL: H00 H20 H26 H30
    Date: 2014
  8. By: Anna Kukla-Gryz (Faculty of Economic Sciences, University of Warsaw); Michał Krawczyk (Faculty of Economic Sciences, University of Warsaw); Konrad Siwiński (Faculty of Economic Sciences, University of Warsaw); Joanna Tyrowicz (Faculty of Economic Sciences, University of Warsaw)
    Abstract: In this study we try to assess the prevalence of illicit downloading in the market of audio books and the willingness to admit to such practices. We compare the Bayesian Truth Serum (Prelec, 2004) treatment in which truthful responses and precise estimates are rewarded to the control treatment with a flat participation fee. We find a sizable treatment effect - incentivized “pirates” admit approximately 60% more often than the non-incentivized ones.
    Keywords: illegal download, digital piracy, Bayesian Truth Serum, wages
    JEL: A13 C93 D12
    Date: 2014
  9. By: Armagan Tuna Aktuna-Gunes (Centre d'Economie de la Sorbonne - Paris School of Economics); Christophe Starzec (Centre d'Economie de la Sorbonne - Paris School of Economics); François Gardes (Centre d'Economie de la Sorbonne - Paris School of Economics)
    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 a statistical match of the 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 expenditure approach (in average 40.6% and 33.5% of GDP for self employers and 20.7% and 14.1% of GDP for wage-earners respectively) and also higher than that obtained by more conventional macroeconomic methods (35.1%).
    Keywords: Informal economy, complete demand system, full expenditures.
    JEL: D01 D12 E26 C81
    Date: 2014–03

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