nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2015‒02‒11
six papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Informal Employment in a Growing and Globalizing Low-income Country By Brian McCaig; Nina Pavcnik
  2. Does an informal sector reduce the economic dividends of political stability? Empirical evidence. By Mazhar, Ummad; Jafri, Juvaria
  3. Trade Reform and Regional Dynamics: Evidence From 25 Years of Brazilian Matched Employer-Employee Data By Rafael Dix-Carneiro; Brian K. Kovak
  4. Eliciting taxpayer preferences increases tax compliance By Jan-Emmanuel De Neve; Cait Lamberton; Michael I. Norton
  5. Just a few cents each day: can fixed regular deposits overcome savings constraints? By Anett John
  6. Urbanizing refuge: interrogating spaces of displacement By Romola Sanyal

  1. By: Brian McCaig; Nina Pavcnik
    Abstract: We document several facts about workforce transitions from the informal to the formal sector in Vietnam, a fast growing, industrializing, and low-income country. First, younger workers, particularly migrants, are more likely to work in the formal sector and stay there permanently. Second, the decline in the aggregate share of informal employment occurs through changes between and within birth cohorts. Third, younger, educated, male, and urban workers are more likely to switch to the formal sector than other workers initially in the informal sector. Poorly educated, older, female, rural workers face little prospect of formalization. Fourth, formalization coincides with occupational upgrading.
    JEL: F0 F16 O12
    Date: 2015–01
  2. By: Mazhar, Ummad; Jafri, Juvaria
    Abstract: Political stability is generally hailed as an asset that yields positive economic dividends. In particular, the macroeconomic environment is likely to benefit from political stability. On the other hand, the existence of a sizeable shadow (or informal) economy represents institutional weaknesses and may undermine the macroeconomic environment. The latter effect is more likely if the shadow economy reduces the government’s tax revenues and disturbs the balance of demand and supply for formal businesses. This paper tests these contradictory tendencies. Circumventing the issues related to reverse causality and endogeneity of the informal sector, we define a qualitative variable for the size of the informal sector. The qualitative variable assumes a value of 1 for all the countries having an informal sector exceeding 25 percent of GDP on average over our sample period. Using a large data set of 162 countries over the 1999 to 2007 period we find that an informal sector can undermine the positive effect of political stability. The results are robust against alternative specifications and satisfy the usual assumptions of valid empirical analysis.
    Keywords: Political stability; Informal sector or shadow economy; Inflation; Openness; tax revenue.
    JEL: E6 E61
    Date: 2014
  3. By: Rafael Dix-Carneiro; Brian K. Kovak
    Abstract: We empirically study the dynamics of labor market adjustment following the Brazilian trade reform of the 1990s. We use variation in industry-specific tariff cuts interacted with initial regional industry mix to measure trade-induced local labor demand shocks, and then examine regional and individual labor market responses to those one-time shocks over two decades. Contrary to conventional wisdom, we do not find that the impact of local shocks is dissipated over time through wage-equalizing migration. Instead, we find steadily growing effects of local shocks on regional formal sector wages and employment for 20 years. This finding can be rationalized in a simple equilibrium model with two complementary factors of production, labor and industry-specific factors such as capital, that adjust slowly and imperfectly to shocks. Next, we document rich margins of adjustment induced by the trade reform at the regional and individual level. Workers initially employed in harder hit regions face continuously deteriorating formal labor market outcomes relative to workers employed in less affected regions, and this gap persists even 20 years after the beginning of trade liberalization. Negative local trade shocks induce workers to shift out of the formal tradable sector and into the formal nontradable sector. Non-employment strongly increases in harder-hit regions in the medium run, but in the longer run, non-employed workers eventually find re-employment in the informal sector. Working age population does not react to these local shocks, but formal sector net migration does, consistent with the relative decline of the formal sector and growth of the informal sector in adversely affected regions.
    JEL: F14 F16 J23
    Date: 2015–01
  4. By: Jan-Emmanuel De Neve; Cait Lamberton; Michael I. Norton
    Abstract: Two experiments show that eliciting taxpayer preferences on government spending—providing taxpayer agency--increases tax compliance. We first create an income and taxation environment in a laboratory setting to test for compliance with a lab tax. Allowing a treatment group to express nonbinding preferences over tax spending priorities, leads to a 16% increase in tax compliance. A followup online study tests this treatment with a simulation of paying US federal taxes. Allowing taxpayers to signal their preferences on the distribution of government spending, results in a 15% reduction in the stated take-up rate of a questionable tax loophole. Providing taxpayer agency recouples tax payments with the public services obtained in return, reduces general anti-tax sentiment, and holds satisfaction with tax payment stable despite increased compliance with tax dues. With tax noncompliance costing the US government $385billion annually, providing taxpayer agency could have meaningful economic impact. At the same time, giving taxpayers a voice may act as a two-way "nudge," transforming tax payment from a passive experience to a channel of communication between taxpayers and government.
    Keywords: Tax compliance; taxpayer agency; taxpayer satisfaction; government spending
    JEL: D00 H26 H30 H50 I31
    Date: 2014–05
  5. By: Anett John
    Abstract: Empirical evidence suggests that there is a high demand for informal savings mechanisms even though these often feature negative returns - such as deposit collectors, ROSCAs, microloans, and informal borrowing. This paper argues that individuals may face even higher negative returns to saving at home due to hyperbolic discounting and claims on savings by relatives. I outline a model that shows why hyperbolic discounters cannot reach their welfare-maximising level of savings, and why a commitment savings product with fixed period contributions can increase their achievable savings level. Using a novel dataset obtained from a small microfinance institution in Bangladesh, the paper then presents some first empirical evidence on the effects of a commitment savings product with fixed regular instalments. I find that the introduction of the regular saver product was associated with an increase in individuals’ savings contributions of 180 percent after a periods of five months. The paper concludes that the provision of commitment savings products with fixed contributions may reduce savings constraints and increase individuals’ welfare, providing a substitute for costly informal mechanisms. However, since the data originates from a field study with self-selection problems rather than a randomized controlled experiment, further studies are needed to confirm this effect.
    Keywords: commitment savings; hyperbolic discounting; Bangladesh
    JEL: J1
    Date: 2014–03
  6. By: Romola Sanyal
    Abstract: Refugee spaces are emerging as quintessential geographies of the modern, yet their intimate and everyday spatialities remain under-explored. Rendered largely through geopolitical discourses, they are seen as biopolitical spaces where the sovereign can reduce the subject to bare life. In conceptualizing refugee spaces some scholars have argued that, although many camps grow and develop over time, they evolve their own unique form of urbanism that is still un-urban. This article challenges this idea of the camp as space of pure biopolitics and explores the politics of space in the refugee camp using urban debates. Using case studies from the Middle East and South Asia, it looks at how the refugee spaces developed and became informalized, and how people recovered their agency through ‘producing spaces’ both physically and politically. In doing so, it draws connections between refugee camps and other spaces of urban marginality, and suggests that refugee spaces can be seen as important sites for articulating new politics.
    Keywords: refugee; urban; informality; exception; agency; Lebanon; Middle East; India; South Asia
    JEL: Q15
    Date: 2014–03

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