nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2015‒04‒19
fifteen papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Informal Employment and Business Cycles in Emerging Economies: The Case of Mexico By Andrés Fernández Martín; Felipe Meza
  2. Informality, Saving and Wealth Inequality in Colombia By Catalina Granda; Franz Hamann
  3. Macroprudential Policy and Labor Market Dynamics in Emerging Economies By Alan Finkelstein Shapiro; Andres Gonzalez
  4. Existence of Structural Disadvantage among socio-religious groups: Is it a reality? An Analysis of Indian Labour Market By DSOUZA, ALWIN; SINGH, SUDERSHAN; RANJAN, RAHUL
  5. Macroprudential Policy and Labor Market Dynamics in Latin America By Alan Finkelstein-Shapiro; Andrés González Gómez
  6. Labor Exclusion and the Erosion of Citizenship Responsibilities By Lucas Ronconi; Rodrigo Zarazaga
  7. Maternity and Labor Markets: Impact of Legislation in Colombia By Natalia Ramírez Bustamante; Ana Maria Tribin Uribe; Carmiña Vargas
  8. European Union and labour’s legal resources in Central and East European Countries By Jan Drahokoupil; Martin Myant
  9. Austerity Plans and Tax Evasion : Theory and Evidence from Greece. By F. Pappadà; Y. Zylberberg
  10. Shared state taxes and tax policy of local self-governments in connection with tax morale By Agnes Sipos
  11. Tax me if you can: An artefactual field experiment on dishonesty By Catrine Jacobsen; Marco Piovesan
  12. Electronic Fiscal Devices (EFDs) An Empirical Study of their Impact on Taxpayer Compliance and Administrative Efficiency By Peter Casey; Patricio Castro
  13. The impact of selected variables on the VAT gap in the Member States of the European Union By Ingrid Majerová
  14. Managing Risk with Insurance and Savings: Experimental Evidence for Male and Female Farm Managers in the Sahel By Delavallade, Clara; Dizon, Felipe; Hill, Ruth; Petraud, Jean Paul
  15. Flujos de trabajadores en el mercado laboral colombiano, determinantes de las diferencias entre hombres y mujeres, y futuro laboral esperado By Hugo López Castaño; Francisco Lasso Valderrama

  1. By: Andrés Fernández Martín; Felipe Meza
    Abstract: This paper documents how informal employment in Mexico is countercyclical, lags the cycle and is negatively correlated to formal employment. This contributes to explaining why total employment in Mexico displays low cyclicality and variability over the business cycle when compared to Canada, a developed economy with a much smaller share of informal employment. To account for these empirical findings, a business cycle model is built of a small, open economy that incorporates formal and informal labor markets, and the model is calibrated to Mexico. The model performs well in terms of matching conditional and unconditional moments in the data. It also sheds light on the channels through which informal economic activity may affect business cycles. Introducing informal employment into a standard model amplifies the effects of productivity shocks. This is linked to productivity shocks being imperfectly propagated from the formal to the informal sector. It also shows how imperfect measurement of informal economic activity in national accounts can translate into stronger variability in aggregate economic activity.
    Keywords: Workforce & Employment, Production & Business Cycles, Emerging economies, Business cycles, Informal employment, IDB-TN-515
    Date: 2015–01
  2. By: Catalina Granda; Franz Hamann
    Abstract: The informal sector is an extensive phenomenon in developing countries. While some of its implications have drawn considerable attention in the literature, one relatively unexplored aspect has to do with the saving patterns of workers and firms and how these might influence aggregate savings and wealth inequality. This paper aims to fill that gap by examining both entrepreneurs' and workers' choices regarding whether to perform informally and regarding asset accumulation. Specifically, the paper builds an occupational choice model wherein saving is primarily motivated by precautionary considerations. The model features labor and capital market segmentation, and it is calibrated to replicate the saving rates, wealth inequality and composition of occupations across the formal and informal sectors of Colombia. Computational experiments additionally make it possible to analyze the effects of highly debated formalization policies on wealth redistribution and promotion of saving and entrepreneurship. Alternative frameworks are finally considered.
    Keywords: Income, Consumption & Saving, Wealth inequality, Informality, Wealth inequality, Saving, Occupational choice models
    Date: 2015–02
  3. By: Alan Finkelstein Shapiro; Andres Gonzalez
    Abstract: Emerging economies have high shares of self-employed individuals running owner-only firms who, in contrast to many salaried firms, have little access to formal financing and therefore rely on informal financing (input credit) from other firms. We build a small open economy real business cycle model with labor and financial market frictions where formal credit markets, informal credit, and the structure of the labor market interact. The model successfully replicates the cyclical behavior of sectoral employment, formal credit, and the main macroeconomic aggregates in emerging economies. We show that a countercyclical macroprudential policy that reduces formal credit fluctuations has positive though quantitatively limited effects on consumption and output volatility, but generates larger unemployment fluctuations in response to productivity shocks; the same policy increases labor market and aggregate volatility in response to net worth shocks. The link between input credit and the labor market structure---key for capturing the cyclical dynamics of labor and credit markets in the data---plays a crucial role for these results.
    Keywords: Macroprudential policies and financial stability;Latin America;Emerging markets;Labor markets;Business cycles;Small open economies;Labor market friction;Econometric models;Business cycles, self-employment, labor search frictions, financial frictions, macroprudential policy.
    Date: 2015–04–03
    Abstract: The labour market in India has been segmented into a formal and informal sector. More than 85% of the labour force is engaged in the informal sector. Since the informal sector does not follow labour laws such as provisions of minimum wage and social security, there is enough scope for differential treatment against certain weaker sections of society. We term this differential treatment as structural disadvantage. In this paper, we find that structural disadvantage against ST/SC Hindus relative to Upper class Hindus and Upper class Hindus relative to that of Other religious minorities does exist in India. But is non-existent against Muslims given our specification. What is a cause for worry is that the dis-advantage against ST/SCs Hindus has been increasing overtime whereas against Upper Hindus has considerably fallen. Increase in better quality of middle and higher education along with more reservations for ST/SCs in education and in formal labour markets can go a long way to abate the the magnitude of structural dis-advantage.
    Keywords: Structural disadvantage, Socio-religious groups, labour market segmentation, development, India.
    JEL: J30 J31 J70 J71
    Date: 2015–01–06
  5. By: Alan Finkelstein-Shapiro; Andrés González Gómez
    Abstract: This paper builds a small open economy business cycle model with labor and financial market frictions that incorporates frictional, endogenous self-employment entry and a link between formal credit markets, informal credit, and the labor market. The paper then shows that the model is consistent with the cyclical behavior of both labor and credit markets in Latin American economies and analyzes the aggregate consequences of cyclical macroprudential policy for labor market and aggregate dynamics. It is found that a policy that reduces credit fluctuations successfully reduces consumption, investment, and output volatility, but generates substantially higher unemployment fluctuations in response to productivity shocks. Moreover, the policy increases the volatility of all these variables in response to net worth shocks. The link between formal credit markets, input credit between firms, and self-employment plays a key role in explaining the adverse impact of macroprudential policy on unemployment dynamics. The findings point to potential gains from policy complementarities between macroprudential regulation and active labor market interventions over the business cycle.
    Keywords: Production & Business Cycles, Financial Policy, Labor markets, Labor search, Business cycles, Macroprudential policies, Financial frictions
    Date: 2015–03
  6. By: Lucas Ronconi; Rodrigo Zarazaga
    Abstract: This paper shows that workers who do not receive legally mandated benefits due to employer noncompliance have a negative view not only of their employers, as has been documented, but also of the State. Those workers believe that the State did not protect their rights, and hence they feel fewer obligations to comply with their duties as citizens. Using a list experiment, as well as household data from nine Latin American countries, the paper shows that non-registered workers are less likely to obey the law, pay taxes and vote compared to registered workers.
    Keywords: Workforce & Employment, Taxation, Labor Relations, Labor, Informality, Citizenship, Vote, Taxes, Latin America, Citizenship responsibilities
    Date: 2015–03
  7. By: Natalia Ramírez Bustamante; Ana Maria Tribin Uribe; Carmiña Vargas
    Abstract: This study seeks to determine the impact on female labor outcomes of the amendment to the Colombian labor law that extended maternity leave from 12 to 14 weeks (Law 1468 of July 2011). To identify this impact, labor market outcomes of two groups of women with different fertility rates are compared. The study finds evidence that as a result of the extension of the maternity leave period, women in the high-fertility age group experience an increase in inactivity rates, informality, and self-employment. The study points to the need for a redesign of maternity protection policy that would enable the economic and social costs of bearing children to be shared by both parents and that may generate social change regarding the importance of paternal care.
    Keywords: Workforce & Employment, Labor Market Policies, Gender Equality, Labor Legislation, Women, Labor markets, Labor regulation, Maternity leave, Female labor market
    Date: 2015–03
  8. By: Jan Drahokoupil; Martin Myant
    Abstract: This article investigates the influence of the European Union (EU) on legal resources available to labour to tackle labour market challenges in central and east European countries after their accession to the EU in 2004 and 2007. Its conclusion is that the EU’s impact has been complex and contradictory, with differences between countries and time periods. It has to varying degrees encouraged social partnership and supported a model of employment relations giving high levels of legal and collective protection to employees. Since 2008, the EU has advocated reductions in protection for employees on standard contracts and a very substantial reduction in collective bargaining coverage in one case, only partially balanced by advocacy for improving the lot of those on less secure employment relationships. The EU agenda has in practice been largely irrelevant to the widespread informalization and casualization of employment relations in the region.
    Keywords: labour market, labour code, trade unions, collective bargaining, central and eastern Europe
    Date: 2015–04–13
  9. By: F. Pappadà; Y. Zylberberg
    Abstract: The unprecedented tax hikes implemented in Greece in 2010 generated a much lower than expected increase in tax revenues. In this paper, we document a new stylized fact explaining this gap: the strong increase of tax evasion. We then analyze the response of the economy to tax hikes in a stylized model where firms adjust the share of their declared activity. We calibrate the model to firm-level balance sheet data for Greece and quantify the response of tax evasion to the 2010 fiscal adjustment. One third of the tax increase is lost because small and medium size firms expand their share of non-declared activity. In turn, this lowers their borrowing capacity and contributes to non-negligible output losses.
    Keywords: tax evasion, austerity plans, credit frictions.
    JEL: E02 E62 H26
    Date: 2015
  10. By: Agnes Sipos (Budapest Business School)
    Abstract: Based on our assumption, tax morale significantly depends on a country’s legal, historical, social and cultural background and circumstances. In the first part of the paper, we discuss the legal dimension of the tax morale – including the interconnection of law, ethics and moral. Furthermore, we analyze the facts breaching tax liabilities under the scope of the criminal law and the actions violating the tax morale but not qualified as infringement of the criminal law. In the second part of the paper, we provide empirical evidences which factors (e.g. personal characteristics, commitment for paying local taxes, knowledge about the distribution of paid taxes between central and local authorities, etc.) determine significantly the individual level of tax morale. The paper discusses these complex connections either from the viewpoint of law or economics in order to find out whether it is possible to develop the tax morale of individuals, or can the legislator adequately rule the different forms of tax evasion.
    Keywords: tax morale, legal morale, tax regime, tax system
    JEL: H21 H23 H24 H26
    Date: 2015–04
  11. By: Catrine Jacobsen (Department of Food and Resource Economics, University of Copenhagen); Marco Piovesan (Department of Economics, University of Copenhagen)
    Abstract: In this paper, we test whether increased salience of a tax charge increases dishonesty using a version of the die-under-cup paradigm. Participants earn money in proportion to the outcome reported and, thus, have an incentive to over-report. We find a significant increase in high outcomes in the presence of a tax frame suggesting that participants use the tax as an excuse to rationalize their dishonest act. In addition, we tested whether adding an explanation for the adoption of the tax would increase honesty. We find evidence for reversed dishonesty with participants reporting significantly more low outcomes. These results warn policy makers about the non-trivial relationship between taxation charges and dishonesty.
    Keywords: Dishonesty, Tax evasion, Deduction, Framing
    JEL: C9 D03 H26
    Date: 2015–03
  12. By: Peter Casey; Patricio Castro
    Abstract: Several administrations have adopted electronic fiscal devices (EFDs) in their quest to combat noncompliance, particularly as regards sales and the value-added tax (VAT) payable on sales. The introduction of EFDs typically requires considerable effort and has costs both for the administration and for the taxpayers that are affected by the requirements of the new rules. Despite their widespread use, and their considerable cost, EFDs can only be effective if they are a part of a comprehensive compliance improvement strategy that clearly identifies risks for the different segments of taxpayers and envisages measures to mitigate these risks. EFDs should not be construed as the “silver bullet†for improving tax compliance: as with any other technological improvement the deployment of fiscal devices alone cannot achieve meaningful results, whether in terms of revenue gains or permanent compliance improvements.
    Keywords: Tax administration;Tax compliance;Value added taxes;Tax collection;Revenue administration;Technological innovation;Tax administration, electronic fiscal devises, noncompliance, VAT
    Date: 2015–03–30
  13. By: Ingrid Majerová (Silesian University in Opava, School of Business Administration in Karvina)
    Abstract: One of the most serious problems of fiscal character is the issue of the tax gap. The tax gap is defined as the amount of tax liability faced by taxpayers that is not paid on time. The tax gap comes from three main areas of non-compliance with the tax law – firstly from underreporting of income, secondly from underpayment of taxes and thirdly from non-filling of returns. The tax evasions in the area of value added tax form one of the largest groups of tax gap. This article describes the current situation in the field of tax gap in selected countries of the European Union, namely the VAT gap. The aim of this paper is to determine a dependence of the VAT gap on three variables, the Corruption Perception Index CPI, GDP growth rate and the basic VAT rate. A method of the regression analysis has been used, performed on data in the years 2000-2011. In spite of the fact that it could be assumed that tax burden will affect the VAT gap the most, the highest dependence was shown in the case of the Corruption Perception Index.
    Keywords: tax gap; value added tax; Corruption Perception Index; GDP growth; VTTL model; regression
    JEL: H26 H32
    Date: 2015–04
  14. By: Delavallade, Clara (SALDRU, School of Economics, University of Cape Town and IFPRI); Dizon, Felipe (University of California Davis); Hill, Ruth (The World Bank); Petraud, Jean Paul (IMPAQ International)
    Abstract: Although there is fast-growing policy interest in offering financial products to help rural households manage risk, the literature is still scant as to which products are the most effective. This paper uses a randomized field experiment in Senegal and Burkina Faso to compare male and female farmers who are offered index-based agricultural insurance with those who are offered a variety of savings instruments. The paper finds that female farm managers were less likely to purchase agricultural insurance and more likely to invest in savings for emergencies, even controlling for access to informal insurance and differences in crop choice. It is hypothesized that this finding results from the fact that, although men and women are equally exposed to yield risk, women face additional sources of lifecycle risk—particularly health risks associated with fertility and childcare—that men do not. In essence, the basis risk associated with agricultural insurance products is higher for women. Purchasing insurance increased input spending and use more than savings. Those who purchased more insurance realized higher average yields and were better able to manage food insecurity and shocks. This finding suggests that gender differences in demand for financial products can have an impact on productivity, resilience, and welfare.
    Keywords: risk, insurance, savings, gender
    JEL: O12
    Date: 2015
  15. By: Hugo López Castaño; Francisco Lasso Valderrama
    Abstract: Con base en la información sobre los estados laborales de la población en edad de trabajar, contenida en las encuestas transversales de hogares del período 2008-2013, con cobertura nacional, en este documento se estiman, por sexo, edad y dos niveles de educación, las tasas anuales de transición entre los asalariados, los no asalariados, los desocupados y los inactivos. Sobre esa base estadística se examinan los determinantes de las diferencias que presentan dichas tasas entre hombres y mujeres, y se estima cuál sería el futuro laboral de la población colombiana si esas tasas se mantuvieran en su actual nivel. Se encuentra que las mujeres con bajo nivel educativo son las más afectadas y presentan las peores expectativas futuras: un mayor desempleo, un nivel más alto de informalidad y una participación laboral sustancialmente menor. Además, en el caso de las mujeres con menor nivel educativo, las jefas de hogar con hijos menores constituyen el grupo más vulnerable: están forzadas a participar laboralmente en mayor medida que las cónyuges, puesto que no cuentan con el apoyo de sus parejas; tratan de esquivar, con un éxito apenas parcial, el desempleo, sobre todo el de larga duración, y a cambio deben aceptar el primer trabajo informal que se les presente. Para ellas deben diseñarse políticas laborales especiales.
    Keywords: Política de empleo, Población activa y empleo, Igualdad de género, Probabilidades de transición, Flujos de trabajadores, Informalidad, Desempleo
    Date: 2015–03

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