nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2014‒07‒13
ten papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. The Shadow Economy and Shadow Labor Force: A Survey of Recent Developments By Schneider, Friedrich
  2. Between Light and Shadow: Informality in the Russian Labour Market By Gimpelson, Vladimir; Kapeliushnikov, Rostislav
  3. Corruption, Tax Evasion and Social Values By Anastasia Litinia; Theodore Palivos
  4. Managing Income Tax Compliance through Self-Assessment By Andrew Okello
  5. Republic of Estonia: Technical Assistance Report-Revenue Administration Gap Analysis Program-The Value-Added Tax Gap By International Monetary Fund. Fiscal Affairs Dept.
  6. The determinants of exit in Argentina: core and peripheral regions By Calá, Carla Daniela; Manjón-Antolín, Miguel; Arauzo-Carod, Josep-Maria
  7. Workfare as "Collateral": The case of the National Rural Employment Guarantee Scheme (NREGS) in India By Subhasish Dey; Katsushi S. Imai
  8. By Choice and by Necessity: Entrepreneurship and Self-Employment in the Developing World By Margolis, David N.
  9. Panama: Detailed Assessment Report—FATF Recommendations for Anti-Money Laundering and Combating the Financing of Terrorism By International Monetary Fund. Legal Dept.
  10. Panama: Report on Observance of Standards and Codes—FATF Recommendations for Anti-Money Laundering and Combating the Financing of Terrorism By International Monetary Fund. Legal Dept.

  1. By: Schneider, Friedrich (University of Linz)
    Abstract: This survey presents the various methods to estimate the size of the shadow economy, their strengths and weaknesses and the estimation results. The purpose of the survey is threefold. Firstly, it demonstrates that no ideal method to estimate the size and development of the shadow economy exists. Because of its flexibility, the MIMIC method used to get macro-estimates of the size of the shadow economy is discussed in greater detail. Secondly, the paper focuses on the definition and causal factors of the shadow economy as well as on a comparison of the size of the shadow economy using different estimation methods. Thirdly, estimations of the size of the shadow economy and shadow labor force are presented and discussed.
    Keywords: shadow economy estimates, shadow labor force, MIMIC approach, methods to estimate the shadow economy, advantages and disadvantages of the measurement methods, shadow labor force and unemployment, micro studies on shadow labor force
    JEL: D78 E26 H2 H11 H26 K42 O5 O17
    Date: 2014–06
  2. By: Gimpelson, Vladimir (CLMS, Higher School of Economics, Moscow); Kapeliushnikov, Rostislav (CLMS, Higher School of Economics, Moscow)
    Abstract: Economic growth in Russia in the first decade of this century almost doubled the country's GDP but was accompanied by substantial reallocation of labor to the unregulated sector while formal employment was on gradual decline. The paper overviews evolution of the Russian labour market during the period of 2000-10 and discusses most general implications of informality to employment and earnings as well as the associated political economy challenges and consequences.
    Keywords: informal labour market, employment, Russia
    JEL: J31 J40 P2
    Date: 2014–06
  3. By: Anastasia Litinia (CREA, Université de Luxembourg); Theodore Palivos (Athens University of Economics and Business)
    Abstract: We provide empirical support and a theoretical explanation for the vicious circle of political corruption and tax evasion in which countries often fall into. We address this issue in the context of a model with two distinct groups of agents: citizens and politicians. Citizens decide the fraction of their income for which they evade taxes. Politicians decide the fraction of the public budget that they speculate. We show that multiple self-fulfilling equilibria with different levels of corruption can emerge based on the existence of strategic complementarities, indicating that corruption may corrupt. Furthermore, we find that standard deterrence policies cannot elimi- nate multiplicity. Instead, we find that impose a strong moral cost on tax evaders and corrupt politicians can lead to a unique equilibirum.
    Keywords: Corruption, Tax Evasion, Mutiple Equilibria, Stigma
    JEL: D73 E62 H26
    Date: 2014
  4. By: Andrew Okello
    Abstract: Modern tax administrations seek to optimize tax collections while minimizing administration costs and taxpayer compliance costs. Experience shows that voluntary compliance is best achieved through a system of self-assessment. Many tax administrations have introduced self-assessment principles in the income tax law but the legal authority is not being consistently applied. They continue to rely heavily on “desk†auditing a majority of tax returns, while risk management practices remain largely underdeveloped and/or underutilized. There is also plenty of opportunity in many countries to enhance the design and delivery of client-focused taxpayer service programs, and better engage with the private sector and other stakeholders.
    Keywords: Income taxes;Tax assessments;Tax collection;Tax legislation;Tax policy;Tax administration;Cross country analysis;income tax, tax compliance, self-assessment, risk management, Sub-Saharan Africa
    Date: 2014–03–11
  5. By: International Monetary Fund. Fiscal Affairs Dept.
    Abstract: EXECUTIVE SUMMARY This report presents the results of applying the Revenue Administration Gap Analysis Program VAT gap estimation methodology to Estonia for the period 2007–12. The methodology employs a top-down approach for estimating the potential VAT base, using statistical data on value-added generated in each sector. There are two main components to this methodology for estimating the VAT compliance gap: 1) estimate the potential net VAT collections for a given period, and 2) determine the accrued net VAT collections for that period. The difference between the two values is the compliance gap. The Estonian Tax and Customs Board have been estimating their VAT and other tax compliance gaps since 2004. These estimates and associated compliance and risk analysis, all produced by the ETCB Intelligence Department, are used to set strategic priorities and identify risks and potential targets for tactical operations. Between 2009 and 2012, VAT receipts failed to keep pace with nominal GDP and final consumption growth, due to a growing compliance gap. This is observed in VAT compliance gap estimates produced by RA-GAP, Center for Social and Economic Research (CASE),1 and the ETCB. In particular, over the period 2008–11, the VAT compliance gap almost doubled and losses increased by over €150 million (Figure 1). 1 “Study to quantify and analyse the VAT Gap in the EU-27 Member States†Final Report TAXUD/2012/DE/316 for the European Commission, TAXUD, by CASE – Center for Social and Economic Research (Project leader) and CPB s Bureau for Economic Policy Analysis (Consortium leader).
    Keywords: Value added tax;Tax revenues;Economic models;Technical Assistance;Estonia;
    Date: 2014–05–23
  6. By: Calá, Carla Daniela; Manjón-Antolín, Miguel; Arauzo-Carod, Josep-Maria
    Abstract: This paper analyses the regional determinants of exit in Argentina. We find evidence of a dynamic revolving door by which past entrants increase current exits, particularly in the peripheral regions. In the central regions, current and past incumbents cause an analogous displacement effect. Also, exit shows a U-shaped relationship with respect to the informal economy, although the positive effect is weaker in the central regions. These findings point to the existence of a core-periphery structure in the spatial distribution of exits.
    Keywords: Cese de Actividad; Empresas; Argentina;
    Date: 2014
  7. By: Subhasish Dey (Economics, School of Social Sciences, University of Manchester, UK); Katsushi S. Imai (School of Social Sciences, University of Manchester (UK) and RIEB, Kobe University (Japan))
    Abstract: This paper argues that a major beneficial impact of workfare programmes is through their role in allowing participants to improve their access to "credit". Sustainable programme participation over many years serves as "collateral" for households' acquisition of informal credit, leading to the improvement in economic security and poverty reduction. A conceptual framework using an infinitely repeated trilateral stage game among lenders, workfare participants, and local politicians is developed. This is used to underscore how participation in NREGS matters for securing informal credit from the local shop owners or moneylenders to tackle temporal adverse income spells and smooth out consumption shocks. Using three rounds household panel data for 2009-2012 based on our primary surveys in West Bengal, we provide robust evidence that continuous programme participation significantly facilitates informal credit acquisition, increases income and consumption, and consumption smoothing.
    Keywords: NREGS, Panel data, Impact, Consumption, Income, Credit, West Bengal, India
    JEL: I38 O12
    Date: 2014–06
  8. By: Margolis, David N. (Paris School of Economics)
    Abstract: Over half of all workers in the developing world are self-employed. Although some self-employment is chosen by entrepreneurs with well-defined projects and ambitions, roughly two thirds results from individuals having no better alternatives. The importance of self-employment in the overall distribution of jobs is determined by many factors, including social protection systems, labor market frictions, the business environment, and labor market institutions. However, self-employment in the developing world tends to be low productivity employment, and as countries move up the development path, the availability of wage employment grows and the mix of jobs changes.
    Keywords: self-employment, entrepreneurship, development
    JEL: J21 L26 O14 O17
    Date: 2014–06
  9. By: International Monetary Fund. Legal Dept.
    Abstract: EXECUTIVE SUMMARY Panama is vulnerable to money laundering (ML) from a number of sources including drug trafficking and other predicate crimes committed abroad such as fraud, financial and tax crimes. It is a country with an open, dollarized economy and, as a regional and international financial and corporate services center, offers a wide range of offshore financial and corporate services. It is also a transit point for drug trafficking from South American countries with some of the highest levels of production and trafficking of illegal drugs in the world. These factors put the country at high risk of being used for ML. Although the authorities have not conducted a risk assessment, they attribute the largest sources of ML to drug trafficking and other predicate crimes committed abroad. No information or estimates were provided on the extent of domestic and foreign predicate crimes and the amount of related ML in Panama. No terrorism financing (TF) cases have been detected so far.
    Keywords: Anti-money laundering;Financial institutions;Nonbank financial sector;Private sector;Freeze on financial assets;Combating the financing of terrorism;International cooperation;Reports on the Observance of Standards and Codes;Panama;
    Date: 2014–02–18
  10. By: International Monetary Fund. Legal Dept.
    Abstract: In recent years, the IMF has released a growing number of reports and other documents covering economic and financial developments and trends in member countries. Each report, prepared by a staff team after discussions with government officials, is published at the option of the member country.
    Keywords: Anti-money laundering;Financial institutions;Nonbank financial sector;Corporate sector;Combating the financing of terrorism;International cooperation;Reports on the Observance of Standards and Codes;Panama;
    Date: 2014–02–18

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