nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2014‒09‒29
four papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Firm-Size Wage Gaps along the Formal-Informal Divide : Theory and Evidence By Binnur Balkan; Semih Tumen
  2. Labour mobility and the informal sector in Algeria: a cross-sectional comparison (2007-2012) By Philippe Adair; Youghourta Bellache
  3. Tax Evasion by Individuals By Laszlo Goerke
  4. Does Firm Heterogeneity Impact the Effectiveness of Carbon Taxes? Experiments in Argentina and Mexico By Omar O. Chisari; Sebastián J. Miller

  1. By: Binnur Balkan; Semih Tumen
    Abstract: Observationally equivalent workers are paid higher wages in larger firms. This fact is often named as the “firm-size wage gap” and is regarded as a key empirical puzzle. Using micro-level data from Turkey, we document a new stylized fact : the firm-size wage gap is more pronounced for informal (unregistered) jobs than for formal (registered) jobs. To explain this fact, we develop a two-stage wage-posting game with market imperfections and segmented markets, the solution to which produces wages as a function of firm size in a well-defined subgame-perfect equilibrium. The model proposes two explanations. First, taxes on formal employment generate a wedge between formal and informal size wage gaps. Thus, government policy can potentially affect the magnitude of the firm-size wage gaps. The second explanation features a market-based framework with strategic interactions. Relative to small firms, large firms typically post higher wages for both formal and informal jobs they open. A high-wage formal job attracts a larger pool of applicants than a high-wage informal job. The larger pool of applicants for the formal job, in turn, allows the firm to somewhat lower the initial wage offer, while this second-round effect is negligible for informal jobs. As a result, size differentials are lower in formal jobs than informal jobs. We argue that the observed patterns in the use of social connections in job search and heterogeneity in job preferences can be used to justify the validity of this second mechanism.
    Keywords: Firm size, Wage gap, Informal job, Wage posting, Subgame perfection, Taxes, Social networks
    JEL: C78 J21 J31 L11
    Date: 2014
  2. By: Philippe Adair; Youghourta Bellache
    Date: 2014
  3. By: Laszlo Goerke (Institute for Labour Law and Industrial Relations in the EU, University of Trier)
    Abstract: The basic deterrence model of tax evasion is described, its main predictions are derived and limitations and flexibility are outlined. Further, the model is interpreted in light of some key institutional features characterising tax enforcement in OECD countries. Throughout the survey, findings originating from the deterrence model are contrasted with predictions which result from a simple model of criminal activity and law enforcement.
    Keywords: Economics of Crime, Income Tax, Tax Evasion
    JEL: H24 H26 K34
    Date: 2014–08
  4. By: Omar O. Chisari; Sebastián J. Miller
    Abstract: This paper examines the effectiveness of carbon taxes on macroeconomic performance when manufacturing firms have the opportunity to change their scale of operation and degree of formality. The hypothesis is that when tax evasion or elusion is possible, it cannot be ruled out that emissions increase rather than decrease due to the reallocation of resources from the rest of manufacturing towards informal small-scale firms. When informality is high, industry could adapt to carbon taxes by reducing the scale of operation of big firms and increasing the number of small firms. However, when taxes are enforceable in all types of firms, there is a cost in terms of GDP and employment, since small-scale firms are more labor intensive. For numerical experiments, two CGE models calibrated for Argentina and Mexico are used. The 'domestic leakage' is found to be more relevant for Argentina than for Mexico.
    Keywords: Environmental taxes, Tax evasion, Taxation, Argentina, Mexico, Informality, Carbon taxes, General Equilibrium Model (CGE)
    Date: 2014–08

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