nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2014‒05‒24
thirteen papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Labor Informality: Choice or Sign of Segmentation? A Quantile Regression Approach at the Regional Lvel for Colombia By Gustavo A. Garcia
  2. Unemployement Protection for Informal Workers in Latin America and the Caribbean By Alan Finkelstein-Shapiro; Miguel Sarzosa
  3. Unemployment Insurance in High Informality Countries By Emilio Espino; Juan M. Sánchez
  4. Labour formalization and declining inequality in Argentina and Brazil in the 2000s a dynamic approach By Maurizio, Roxana
  5. Credit Constraints, Sector Informality and Firm Investments: Evidence from a Panel of Uruguayan Firms By Néstor Gandelman; Alejandro Rasteletti
  6. Normative Fiscal Policy and Growth: Some Quantitative Implications for the Chilean Economy By Emilio Espino; Martín González Rozada
  7. A computational model of optimal commodity taxation By John T. Revesz
  8. Taxation and Economic Growth in Colombia By Roberto Steiner
  9. Entrepreneurial Saving Practices and Reinvestment: Theory and Evidence from Tanzanian MSEs By Thorsten Beck; Haki Pamuk; Burak R. Uras
  10. Costs and Benefits to Phasing Out Paper Currency By Kenneth S. Rogoff
  11. Virtual Social Currencies for Unemployed People: Social Networks and Job Market Access By Maëlle Della Peruta; Dominique Torre
  12. Lecciones a partir de experimentos de formalización empresarial By Sebastián Galiani; Marcela Meléndez Arjona
  13. Sector rural colombiano: Dinámica laboral y opciones de afiliación a la seguridad social By César Augusto MERCHÁN HERNÁNDEZ

  1. By: Gustavo A. Garcia
    Abstract: The labor market in developing countries is remarkably heterogeneous with a small productive formal sector, enjoying high wages and attractive employment conditions and another large informal sector with low productivity and volatile wages. The informal sector is particularly diverse. In this paper we examine the heterogeneity of the informal sector at regional level in Colombia. In general, our ndings suggest that, both voluntary and involuntary informal employment co-exist by choice and as a result of labor market segmentation. We also nd that there are striking dierences in labor market characteristics between cities, in particular in the traditional informal segment.
    Keywords: Informality, local labor markets, quantile regression, selection bias, formal/informal wage gap decomposition
    JEL: O17 J42 J31 C21
    Date: 2014–04–01
  2. By: Alan Finkelstein-Shapiro; Miguel Sarzosa
    Abstract: We use a dynamic stochastic general equilibrium search and matching model with salaried employment and informal self-employment to analyze the implications of introducing universal unemployment protection for informal workers through transfers, which are conditional on participation in training programs. We study how changes in unemployment benefits (UB) for unemployed workers in training programs (training UB), modify labor market outcomes for the unemployed. The model suggests that increasing training UB reduces unprotected unemployment and improves labor market outcomes through higher formal salaried employment and lower informal self-employment. Allowing for idiosyncratic quality in these training programs is key for these results. Higher training UB can also reduce total informal employment through a drastic reduction in the share of informal self-employment, without necessarily causing a large increase in total unemployment. Finally, the model suggests that increasing training UB may increase the volatility of unprotected unemployment. The influence of training programs on formal wage-setting is crucial to explain these results.
    Keywords: Labor Policy, Social Security, WP-385, Business cycles, informality, labor search
    Date: 2012–09
  3. By: Emilio Espino; Juan M. Sánchez
    Abstract: Providing unemployment insurance is particularly problematic in countries with high informality because workers can claim unemployment benefits and work in the informal sector at the same time. This paper proposes a method to evaluate alternative schemes to provide insurance for unemployed individuals. First, it presents an economy that can be calibrated to reproduce key features of the economy for which the reform will be evaluated. Then, it shows how the implementation of an unemployment insurance savings account (UISA) scheme can be evaluated. The method is applied to Mexico, and the results show how the UISA scheme would eliminate incentives for participation in the informal sector. The implementation of the UISA would imply large welfare gains from the ex-ante perspective.
    Keywords: Workforce & Employment, Social Security, Labor Policy, Unemployment, insurance, informality
    Date: 2013–02
  4. By: Maurizio, Roxana
    Keywords: labour flexibility, income distribution, employment, working conditions, informal economy, data collecting, methodology, trend, Argentina, Brazil, flexibilité du travail, répartition du revenu, emploi, conditions de travail, économie informelle, collecte des données, méthodologie, tendance, Argentine, Brésil, flexibilidad del trabajo, distribución del ingreso, empleo, condiciones de trabajo, economía informal, recopilación de datos, metodología, tendencia, Argentina, Brasil
    Date: 2014
  5. By: Néstor Gandelman; Alejandro Rasteletti
    Abstract: This paper explores whether the extent of informality in a sector affects a firm's investment decision directly or indirectly through a credit availability channel. The dataset used in the estimation of the econometric models consists of an unbalanced panel of Uruguayan firms for the period 1997-2008. The results suggest that financial restrictions affect investment decisions in Uruguay, as an increase in credit to the private sector translates into higher investment rates. A one percentage point increase in overall credit growth translates into a one half percent increase in investment rates. It is also found that, although there is no direct effect of informality on the firm investment decision, there is an indirect effect through the borrowing channel. More specifically, financial restrictions reduce the amount of investment undertaken by Uruguayan firms, the effect being smaller if the firm operates in a sector with lower informality.
    Keywords: Financial Services, IDB-WP-392
    Date: 2013–03
  6. By: Emilio Espino; Martín González Rozada
    Abstract: This paper explores the qualitative and quantitative implications of optimal taxation in a developing economy when economic growth is endogenously determined. We differentiate this class of economies from a developed economy in two aspects: informal sector is quantitatively significant and tax-collecting technologies are more rudimentary. We characterize competitive equilibrium allocations and Ramsey allocations in the context of a small open economy in which the interest rate is endogenously determined, some workers can be hired in the informal market, and imperfect tax-collecting technology can be heterogeneous across different types of taxes. We calibrate the parameters of our model to the Chilean economy. Overall, our results suggest that capital should still be taxed but considerably less than actual taxes (that is, 10.78 percent versus 18.5 percent). Labor should be subsidized (to stimulate accumulation of human capital), while consumption taxes should be increased by 50 percent approximately (from 19 percent to 28 percent). As expected, the better the tax collecting technologies, the higher the corresponding taxes. In this context, the resulting growth rate increases only slightly along the balanced growth path.
    Keywords: Economic Development & Growth, Fiscal Policy, Optimal fiscal growth, economic growth, inefficient tax collecting technology
    Date: 2013–09
  7. By: John T. Revesz (Australian Public Service)
    Abstract: This report examines the structure of optimal commodity tax rates in a many-person many-goods static computational model using segmented LES utility. One of the major findings is that with non-linear Engel curves and linear income tax, optimal commodity tax rates tend to be progressive and highly dispersed under logarithmic utility specifications. However, the dispersion of tax rates is considerably reduced if the inequality aversion of society is low or if tax evasion depends among other things on disparities between commodity tax rates. With exogenously given non-optimal and non-linear income tax schedules, usually there is still a need for differentiated and progressive commodity taxation. Tax evasion tends to reduce optimal tax rates for necessities but increases them for luxuries. Private compliance costs and government administration costs reduce optimal tax rates by a similar amount to the share of these costs from taxes. The results indicate that in a redistributive model the effect of externalities on optimal tax rates exceeds the corresponding Pigovian tax rates or subsidies. The main benefit of higher taxes on leisure complements than leisure substitutes appears to relate to increased tax revenue for redistribution rather than improvement in the utility position of those paying the taxes. The effect of complexities such as tax evasion, administrative costs, externalities and leisure complements/substitutes on redistribution is not neutral. Generally, these complexities tend to increase the progressivity of optimal commodity tax rates. Explanations are provided why the numerical results presented here do not contradict the Laroque-Kaplow proposition, which advocates uniform commodity taxation. Some practical application problems and logical weaknesses of the Laroque-Kaplow proposition are noted.
    Keywords: optimal taxation, computational models
    JEL: C63 H21
    Date: 2014–05
  8. By: Roberto Steiner
    Abstract: This Working Paper assesses the impact on investment of a reduction in corporate taxes and the impact on employment, labor formality, and growth of a reduction in non-wage labor costs in Colombia. First, and following Hall and Jorgensen (1967), we estimate an investment function, which depends on the user cost of capital, one of whose determinants is the corporate tax rate. Our estimations suggest that a reduction of the corporate tax rate from 33 to 23 percent--as originally envisioned by the government in early 2012, but finally not included in the reform submitted to Congress--has very different short and long-term effects on investment in machinery and equipment. While the user cost of capital declines 0.9 percent, investment (excluding the oil and mining sector) increases on impact only 28 bps in relation to GDP, an increase that does not compensate the fiscal cost incurred. In the long term, however, it is likely that the significant boost in investment (of around 5 percent of GDP) makes such a policy intervention fiscally sustainable. Second, using a computable general equilibrium model calibrated for Colombia, we estimate that the reduction of the "pure tax" component of non-wage labor costs approved in late 2012 is associated with a 0.5 percent increase in overall employment and, more importantly, with a 1.4 percent increase in formal sector employment. Our estimations indicate that this is achieved at no fiscal cost since government revenue increases as a result of higher output and employment.
    Keywords: Economic Development & Growth, Fiscal management, Taxation, Computable general equilibrium models, Investment, User cost of capital, Corporate taxation, Non-wage labor costs
    Date: 2014–03
  9. By: Thorsten Beck; Haki Pamuk; Burak R. Uras
    Abstract: What is the relationship between entrepreneurial saving practices and reinvestment? We develop a model of entrepreneurial finance and show that entrepreneurial reinvestment decisions depend on the efficiency of saving practices. Utilizing a novel micro & small enterprise survey from Tanzania we test the empirical implications of this theory. We find (1) saving for business purposes and earnings reinvestment are positively related; (2) the practice of saving in a deposit account of a formal financial institution is more likely to facilitate reinvestment compared to the practice of keeping savings within the household. We also show that the negative impact of saving within-the-household on investment is more pronounced for family members with inherently low intra-household bargaining power - such as females and non-head household members. Our work contributes to the recent debate on the implications of saving instruments in developing countries, and suggests informal saving practices as potential barriers to microenterprise performance.
    Keywords: Micro- and small enterprises; savings; reinvestment; Tanzania
    JEL: D14 G21 O12 O16
    Date: 2014
  10. By: Kenneth S. Rogoff
    Abstract: Despite advances in transactions technologies, paper currency still constitutes a notable percentage of the money supply in most countries. For example, it constitutes roughly 10% of the US Federal Reserve’s main monetary aggregate, M2. Yet, it has important drawbacks. First, it can help facilitate activity in the underground (tax-evading) and illegal economy. Second, its existence creates the artifact of the zero bound on the nominal interest rate. On the other hand, the enduring popularity of paper currency generates many benefits, including substantial seigniorage revenue. This paper explores some of the issues associated with phasing out paper currency, especially large-denomination notes.
    Date: 2014–01
  11. By: Maëlle Della Peruta (University of Nice Sophia Antipolis, France; GREDEG CNRS); Dominique Torre (University of Nice Sophia Antipolis, France; GREDEG CNRS)
    Abstract: Alternative currencies continue to develop all around the world, taking various forms (material or immaterial) and fulfill various functions. They are created in order to promote the local economy development and to fight against social exclusion. They are principally aimed to low income people (retired or unemployed people, or people who are living with a low wage). In this paper, we analyze the particular case of virtual currency circulation inside a local community of unemployed people. We elaborate on the assumptions that the organization of LETS and the circulation of complementary currencies have two properties: (i) they help unemployed workers to overcome the double coincidence of want necessity of an informal sector founded on barter exchange; (ii) they help to maintain and develop workers' skills outside job, helping them to observe opportunities of employment even as long-term unemployed workers. We study the global properties of a job market associating traditional short-term and long-term unemployment to the organization of LETS. Using a theoretical Pissarides-style model, we find that the initial level of trust of agents in the complementary currency(cies) but also the effective properties of this(these) currency(cies) are crucial for LETS to become permanent institutions. We also find that if the stationary equilibrium of the job-market includes LETS, then LETS have a positive influence on the rate of employment, on the expected utility of employed workers, and are Pareto improving when the benchmark case is a job market without any LETS.
    Keywords: Social currencies, complementary currencies, unemployment, informal sector
    JEL: E42 E24
    Date: 2014–05
  12. By: Sebastián Galiani; Marcela Meléndez Arjona
    Abstract: En este documento se exploran, en un contexto experimental, el impacto de dos intervenciones dirigidas a incentivar la formalización empresarial en Bogotá, Colombia, y el impacto de la formalización sobre varias dimensiones de desempeño de los negocios. El diseño experimental de la evaluación permite establecer relaciones de causalidad y avanzar sobre lo aprendido hasta ahora en esta literatura. Encontramos que uno de los programas que actualmente emplea la Cámara de Comercio de Bogotá (CCB), entidad a cargo del registro que hace formal a un negocio en Colombia, para incentivar la formalización no tiene ningún efecto sobre la decisión de formalización, mientras que el otro sí tiene un efecto muy importante. Encontramos también que la decisión de formalización impacta positivamente en los ingresos operacionales y los activos de las firmas, pero no afecta el empleo, el acceso al crédito, ni la rentabilidad de los negocios.
    Keywords: Política financiera, Mercados financieros, Servicios financieros, informalidad, emprendimiento, experimentos de campo, comportamiento de la firma, Colombia
    Date: 2013–08
  13. By: César Augusto MERCHÁN HERNÁNDEZ
    Abstract: Este documento presenta un diagnóstico de los aspectos demográficos, del mercado laboral y socio-económicos que influyen en la afiliación a la seguridad social de la población en el área rural. Aspectos como la baja escolaridad, los bajos ingresos, los altos niveles de informalidad y pobreza y la estacionalidad de la producción agrícola no permiten aumentar el nivel de afiliación. Muestra también que a pesar de las características del sector rural, no existe un arreglo institucional especial para la afiliación a la seguridad social. Finalmente, el documento esboza la posibilidad de la universalización de la cobertura en salud y pensión de la población rural.
    Keywords: Sistema de seguridad social, mercado laboral agrícola, demografía, salud, pensión.
    JEL: H55 H75 J43 J48
    Date: 2014–02–05

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