nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2015‒03‒13
seven papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. The informal sector in contemporary models of the aggregate economy By Leal-Ordoñez Julio C.
  2. Cross-subsidies, and the elasticity of informality to social expenditures By Alonso-Ortiz Jorge; Leal-Ordoñez Julio C.
  3. “Regional wage gaps, education, and informality in an emerging country. The case of Colombia” By Paula Herrera-Idárraga; Enrique López-Bazo; Elisabet Motellón
  4. Measuring the Shadow Economy: Endogenous Switching Regression with Unobserved Separation By Filer, Randall K; Hanousek, Jan; Lichard, Tomáš
  5. Does exchange of information between tax authorities influence multinationals' use of tax havens? By Braun, Julia; Weichenrieder, Alfons
  6. The Impact of Software Piracy on Inclusive Human Development: Evidence from Africa By Simplice Asongu; Antonio Rodríguez Andrés
  7. Le marché du travail en République Démocratique du Congo en 2012 : Principaux résultats de la Phase 1 de l’Enquête 1-2-3 By Kankwanda, Grégoire; Makabu Ma Nkenda, Timothée; Nilsson, Björn; Roubaud, François; Torelli, Constance; Wachsberger, Jean-Michel

  1. By: Leal-Ordoñez Julio C.
    Abstract: I review a contemporary branch of the informal sector literature that focus on understanding the way firm behavior is affected by the presence of informality and how such distortions have an impact on aggregate variables. The authors in this group all make use of dynamic general equilibrium (DGE) models. I focus on models with heterogeneous firms and a cost of informality that is increasing with firm size: reducing informality entails a tradeoff because there are some distortions associated with the formal sector and some others with the informal. Quantitative evaluations of this tradeoff using these models show that, in general, reducing informality brings gains. In conclusion, substantial progress has been made in understanding informality and its consequences through the use of DGE models with heterogeneous firms. More research is needed to understand how informality affects the economy when other sources of heterogeneity are considered.
    Keywords: informality, literature survey, dynamic general equilibrium, heterogeneous firms, distortions, productivity.
    JEL: E26 O17 O40
    Date: 2014–11
  2. By: Alonso-Ortiz Jorge; Leal-Ordoñez Julio C.
    Abstract: How is the size of the informal sector affected when the distribution of social expenditures across formal and informal workers changes? Given this distribution, how is it affected when the generosity of these transfers changes? We use a search frictions model with informality, (ex post) heterogeneous workers, and conditional taxes and transfers. In the model, formal jobs are "better" than informal jobs, but harder to get. Taxes are proportional to the wage, while transfers are lump sum, implying a cross-subsidy from high-income to low-income workers. As a result, the marginal worker weighs two opposing forces: changes in taxes vs. changes in transfers. We calibrate the model to Mexico and perform counterfactuals. We find that informality is quite inelastic due to frictions, and due to the opposing forces of taxes and transfers.
    Keywords: Informality, elasticity of informality, social expenditures, cross-subsidies, taxes and transfers, search frictions.
    JEL: E2 E26 J6
    Date: 2014–12
  3. By: Paula Herrera-Idárraga (Pontificia Universidad Javeriana); Enrique López-Bazo (Faculty of Economics, University of Barcelona); Elisabet Motellón (Faculty of Economics, University of Barcelona)
    Abstract: This paper uses Colombian micro-data to analyze the role of education and informality on regional wage differentials. Our hypothesis is that apart from differences in the endowment of human capital across regions, regional heterogeneity in the incidence of informality is another important source of regional wage inequality in developing and emerging countries. This is confirmed by the evidence from Colombia, which in addition reveals remarkable heterogeneity across territories in the wage return to individuals’ characteristics. Regional heterogeneity in returns to education is especially intense in the upper part of the wage distribution. In turn, heterogeneity in the informal pay penalty is more relevant in the lower part.
    Keywords: Regions, Wage differentials, Quantile-based decompositions, Formal/Informal Jobs, Economic Development JEL classification: C21, J31, J38.
    Date: 2015–01
  4. By: Filer, Randall K; Hanousek, Jan; Lichard, Tomáš
    Abstract: We develop an estimator of unreported income that relies on much more flexible identifying assumptions than those underlying previous estimators of the shadow economy using household-level data. Assuming only that evading households have a higher consumption-income gap than non-evaders in surveys, an endogenous switching model with unknown sample separation enables the estimation of both the probability of hiding income and the expected amount of unreported income for each household. Using data from Czech and Slovak household budget surveys, we find the size of the shadow economy to be substantially larger than estimated using other techniques. These results are robust under a number of alternative specifications.
    Keywords: consumption-income gap; tax evasion; underreporting
    JEL: H26 O17
    Date: 2015–03
  5. By: Braun, Julia; Weichenrieder, Alfons
    Abstract: Since the mid-1990s, countries offering tax systems that facilitate international tax avoidance and evasion have been facing growing political pressure to comply with the internationally agreed standards of exchange of tax information. Using data of German investments in tax havens, we find evidence that the conclusion of a bilateral tax information exchange agreement (TIEA) is associated with fewer operations in tax havens and the number of German affiliates has on average decreased by 46% compared to a control group. This suggests that firms invest in tax havens not only for their low tax rates but also for the secrecy they offer.
    Keywords: tax havens,tax information exchange agreements,location decisions,international taxation
    JEL: F21 F23 H87
    Date: 2015
  6. By: Simplice Asongu (Yaoundé/Cameroun); Antonio Rodríguez Andrés (Madrid, Spain)
    Abstract: This paper examines two dimensions of the software piracy-development nexus to complement existing formal literature. It empirically assesses the incidence of piracy on the Human Development Index (HDI) and its constituents and then the instrumentality of Intellectual Property Right (IPR) treaties (laws) in the linkages. An instrumental variable or Two-stage least squares is applied on panel of 11 African countries with data for the period 2000-2010. Three main findings are established: (1) software piracy has a negative incidence on inequality adjusted human development; (2) the unappealing effect of piracy on the HDI is fuelled by per capita economic prosperity and life expectancy components of human emancipation; (3) software piracy increases literacy. Two major policy implications have been retained from the findings. Firstly, adherence to international IPRs protection treaties (laws) may not impede per capita economic prosperity and could improve life-expectancy. Secondly, adoption of tight IPRs regimes may negatively affect human development by diminishing the literacy rate and restricting diffusion of knowledge.
    Keywords: Software piracy; Human development; Intellectual property rights; Panel data, Instrumental variables
    JEL: K42 O34 O38 O47 O57
    Date: 2014–12
  7. By: Kankwanda, Grégoire; Makabu Ma Nkenda, Timothée; Nilsson, Björn; Roubaud, François; Torelli, Constance; Wachsberger, Jean-Michel
    Abstract: The second wave of the 1-2-3 survey was carried out in the Democratic Republic of Congo in 2012. It allows for important insights on basic socio-economic indicators for the first time since the first wave was carried out in 2004-2005. The present survey differs from the previous one in that a significantly larger number of households were surveyed, allowing for representativeness at the provincial level according to the new administrative division voted in the 2005 constitution. The Labour force survey, the first phase of the 1-2-3 survey, carried out in 2012 and conducted by the National Statistic Institute provides a detailed picture of the main characteristics of employment and unemployment in the country. This study, which presents the principal results of the survey, helps highlight the major structural characteristics of the urban and rural labour markets. By identifying their main shortcomings (early labour force participation for children, distortion between young people's expectations and real recruitment prospects, discrimination against women, inefficiency of placement services for the unemployed, generalisation of under-employment, the place of the informal sector, etc.), the study opens up new possibilities for defining policies designed to improve the way labour markets work in DRC.
    Keywords: Labour; Unemployment; Informal Sector; Equatorial Africa; Travail; chômage; secteur informel; Afrique équatoriale;
    JEL: J20 J21 J22 J23 J24 J30 J31 J71 J81 J82
    Date: 2014–12

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