nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2014‒11‒07
nine papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Informal Employment in Russia: Definitions, Incidence, Determinants and Labor Market Segmentation By Hartmut Lehmann; Anzelika Zaiceva
  2. Social security schemes and labor supply in the formal and informal sectors By Rodrigo Ceni
  3. Dodging the Taxman: Firm Misreporting and Limits to Tax Enforcement By Paul Carrillo; Dina Pomeranz; Monica Singhal
  4. Tax Compliance Social Norms and Institutional Quality: An Evolutionary Theory of Public Good Provision By Panayiotis Nicolaides
  5. Benford's law predicted digit distribution of aggregated income taxes: the surprising conformity of Italian cities and regions By Tariq Ahmad Mir; Marcel Ausloos; Roy Cerqueti
  6. Studying the informal aspects of the activity of countries with Social Accounting and Socio- Demographic Matrices By Susana Santos
  7. Saving for a (not so) Rainy Day: A Ramdomized Evaluation of Savings Groups in Mali By Lori Beaman; Dean Karlan; Bram Thuysbaert
  8. Liquidity Substitutes for Public Unemployment Insurance: Evidence from the Introduction of Home Equity Loans in Denmark By Kristoffer Markwardt; Alessandro Martinello; László Sándor
  9. How Does Public IPR Protection Affect its Private Counterpart? Copyright and the Firms' Own IPR Protection in a Software Duopoly By Kresimir Zigic; Jiri Strelicky; Michael Kunin

  1. By: Hartmut Lehmann; Anzelika Zaiceva
    Abstract: This paper takes stock of informal employment in Russia analyzing its incidence and determinants, developing several measures of informal employment and demonstrating that the incidence varies widely across the different definitions. We, however, show that the determinants of informal employment are roughly stable across the different measures. We also estimate an informal-formal wage gap at the means and across the entire wage distributions. We find only weak evidence for labor market segmentation in Russia for salaried workers but establish a segmented informal sector with a lower free entry tier and an upper rationed tier when including the self-employed and entrepreneurs
    Keywords: Informal employment, transition economies, labor market segmentation, Russia
    JEL: J31 J40 P23
    Date: 2014–03
  2. By: Rodrigo Ceni (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía)
    Abstract: This paper analyzes how changes in the social security scheme affect the participation path of workers between the formal and the informal sectors. The choice between the formal and informal sectors is completely voluntary. In this framework, individuals, depending on the retirement program and their endowment of human capital, construct their decision paths in the labor market. I use Argentinean panel data from the period 1995-2011 to estimate a structural model, and this is used to evaluate changes in the workers' behavior when the pension scheme changes. Among the main results, if the parameters are fixed as in the PAYG, there is a slight reduction in the years of the formality and the percentage of workers who achieve a full pension. Moreover, the increase of the requirement to achieve a full pension to 35 years in the formality, increases the percentage of workers in formality over 45 and the number of the years working formally but it decreases the achievement of a pension at all educational levels. The decrease of that requirement has an effect on the reduction of the years in formality even for those who are not affected directly, the high part of the distribution of the high educated. Finally, if the minimum age to achieve a pension is now 67 instead of 65, there is an important increment in the formality and the full pension achievement especially for the low educated workers.
    Keywords: informality, discrete choice, pension schemes, Argentina
    JEL: E26 J24 J26 O17
    Date: 2014–10
  3. By: Paul Carrillo (George Washington University); Dina Pomeranz (Harvard Business School, Entrepreneurial Management Unit); Monica Singhal (Harvard University)
    Abstract: Reducing tax evasion is a key priority for many governments, particularly in developing countries. A growing literature has argued that the ability to verify taxpayer self-reports against reports from third parties is critical for modern tax enforcement and the growth of state capacity. However, there may be limits to the effectiveness of third-party information if taxpayers can make offsetting adjustments on less verifiable margins. We present a simple framework to demonstrate the conditions under which this will occur and provide strong empirical evidence for such behavior by exploiting a natural experiment in Ecuador. We find that when firms are notified by the tax authority about detected revenue discrepancies on previously filed corporate income tax returns, they increase reported revenues, matching the third-party estimate when provided. Firms also increase reported costs by 96 cents for every dollar of revenue adjustment, resulting in minor increases in total tax collection.
    JEL: H25 H26 O23 O38
    Date: 2014–10
  4. By: Panayiotis Nicolaides
    Abstract: This paper presents an evolutionary theory of public good provision. The framework analyses the relationship between endogenous tax compliance norms, formed by the interactions of rationally-bounded individuals in a network, and the quality of institutions that collect taxes and distribute the public good to the individuals. Conditions for the level of public good utility are derived and illustrated on the "Public Good Provision Hypersurface"; a two-dimensional manifold that describes the relationship between norms, institutional quality and public good provision. I show that the effectiveness of the government to collect taxes increases the determinacy of public good provision but does not ensure its maximisation, which depends also on the level of wasteful government expenditure. If the government is ineffective in performing audits, the welfare from public good provision becomes subject to social norms. Lastly, a condition is derived at which social norms of tax compliance can act as a substitute for enforcement and can result in the maximisation of public good utility.
    Keywords: Taxation; Tax compliance; Social norms Public goods, Government waste
    JEL: H26 H41 C73
    Date: 2014–10
  5. By: Tariq Ahmad Mir; Marcel Ausloos; Roy Cerqueti
    Abstract: The yearly aggregated tax income data of all, more than 8000, Italian municipalities are analyzed for a period of five years, from 2007 to 2011, to search for conformity or not with Benford's law, a counter-intuitive phenomenon observed in large tabulated data where the occurrence of numbers having smaller initial digits is more favored than those with larger digits. This is done in anticipation that large deviations from Benford's law will be found in view of tax evasion supposedly being widespread across Italy. Contrary to expectations, we show that the overall tax income data for all these years is in excellent agreement with Benford's law. Furthermore, we also analyze the data of Calabria, Campania and Sicily, the three Italian regions known for strong presence of mafia, to see if there are any marked deviations from Benford's law. Again, we find that all yearly data sets for Calabria and Sicily agree with Benford's law whereas only the 2007 and 2008 yearly data show departures from the law for Campania. These results are again surprising in view of underground and illegal nature of economic activities of mafia which significantly contribute to tax evasion. Some hypothesis for the found conformity is presented.
    Date: 2014–10
  6. By: Susana Santos
    Abstract: Social Accounting Matrices (SAMs) and Socio-Demographic Matrices (SDMs) are presented as tools that offer specific features for studying the activity of countries in several different areas, as well as for supporting policy decision processes. Based on methodological principles derived mainly from the works of Richard Stone, emphasis is placed on the desirability of working in a matrix format, which includes not only people (SDM), but also, at the same time, activities, products, factors of production and institutions (SAM). Approaches based on SAMs and SDMs will be presented as a way of capturing the relevant network of linkages and the corresponding multiplier effects, which can then be used for the subsequent modelling of the activity of the countries to be studied. As an example of socio-economic studies that can be undertaken using approaches based on both SAMs and SDMs, the study of the activity of household unincorporated enterprises, also described as informal, will be illustrated with an application to Portugal. In that application, three scenarios will be briefly presented, involving, on the one hand, two changes in incomes and, on the other hand, a change in expenditures. The macroeconomic effects of those changes will be summarised in the form of changes in the macroeconomic aggregates: Gross Domestic Product, Gross National Income and Disposable Income.
    Keywords: Social Accounting Matrix; Socio-Demographic Matrices; Informal Economy.
    JEL: E01 J11
    Date: 2014–09
  7. By: Lori Beaman (Northwestern University); Dean Karlan (Economic Growth Center, Yale University); Bram Thuysbaert (Ghent University)
    Abstract: High transaction and contracting costs are often thought to create credit and savings market failures in developing countries. The microfinance movement grew largely out of business process innovations and subsidies that reduced these costs. We examine an alternative approach, one that infuses no external capital and introduces no change to formal contracts: an improved “technology” for managing informal, collaborative village-based savings groups. Such groups allow, in theory, for more efficient and lower-cost loans and informal savings, and in practice have been scaled up by international non-profit organizations to millions of members. Individuals save together and then lend the accumulated funds back out to themselves. In a randomized evaluation in Mali, we find improvements in food security, consumption smoothing, and buffer stock savings. Although we do find suggestive evidence of higher agricultural output, we do not find overall higher income or expenditure. We also do not find downstream impacts on health, education, social capital, and female decision-making power.Could this have happened before, without any external intervention? Yes. That is what makes the result striking, that indeed there were no resources provided nor legal institutional changes, yet the NGO-guided, improved informal processes led to important changes for households.
    Keywords: Micro-savings, Savings groups impact
    JEL: O12 D12 D91
    Date: 2014–10
  8. By: Kristoffer Markwardt; Alessandro Martinello; László Sándor
    Abstract: Facing risk, people take precautions by insuring themselves through both formal and informal insurance channels. But are private savings merely an inferior, dominated alterna- tive to formal insurance schemes, or are the two options mutual substitutes? To answer this question, we exploit that a sudden introduction of home equity loans in Denmark exogenously provided some homeowners with unexpected liquidity. Using a ten-year, high-quality panel dataset drawn from Danish administrative registries, we find that those who were suddenly provided with extra liquidity were less likely to sign up for unemployment insurance afterwards compared to other homeowners, thereby showing that private informal insurance can substitute formal public insurance.
    Date: 2014–09
  9. By: Kresimir Zigic; Jiri Strelicky; Michael Kunin
    Abstract: We study how the strength of public intellectual property rights (IPR) protection against software piracy (copyright protection) affects private IPR protection (that software developers may themselves undertake to protect their IPR). There are two software developers that offer a product variety of differing (exogenously given) quality and compete in prices for heterogeneous users, who make a choice whether to buy a legal version, use an illegal copy (if they can), or not use a product at all. Using an illegal version violates IPR and is thus punishable when disclosed. If a developer considers the level of piracy as high, he can introduce a form of physical protection for his software or digital product. The main aim of our analysis is to study how the level and the change of public IPR protection affect the pricing and IPR protection strategies of software developers. In particular, we are interested in establishing when the two forms of IPR protection (public and private) are complements to each other, when are they substitutes and when a change in public IPR has no impact on private IPR protection.
    Keywords: vertically differentiated duopoly; software piracy; Bertrand competition; copyright protection; private and public intellectual property rights protection;
    JEL: D43 L11 L21 O25 O34
    Date: 2014–10

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