nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2015‒08‒01
six papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Tax evasion, informality and the business environment in uganda By Joseph, Mawejje
  2. Illegal Immigration and the Shadow Economy By Carmen Camacho; Fabio Mariani; Luca Pensieroso
  3. Accounting for tax evasion profiles and tax expenditures in microsimulation modelling. The BETAMOD model for personal income taxes in Italy By Andrea Albarea; Michele Bernasconi; Cinzia Di Novi; Anna Marenzi; Dino Rizzi; Francesca Zantomio
  4. On the importance of the dual labour market for a country within a monetary union By Anna Kosior; Michał Rubaszek; Kamil Wierus
  5. Long Term Impacts of Vouchers for Vocational Training: Experimental Evidence for Colombia By Orazio Attanasio; Arlen Guarín; Carlos Medina; Costas Meghir
  6. Reciprocity and Exclusion in Informal Financial Institutions: An Experimental Study of Rotating Savings and Credit Associations By Shimpei Koike; Mayuko Nakamaru; Tokinao OTAKA; Hajime Shimao; Ken-Ichi Shimomura; Takehiko Yamato

  1. By: Joseph, Mawejje
    Abstract: Uganda has recorded impressive economic growth rates over the last two decades. How¬ever despite the sustained period of growth, the tax effort measured by the tax-to-GDP ratio has stagnated between 10-13 percent of GDP over the same period. Non-empirical evidence has identified the pervasiveness of the informal sector, tax evasion, narrow tax base, and tax breaks variously given out by the government as some of the factors that might explain the inelastic tax system in Uganda. While the informal sector has implications for tax effort, there is limited research on the microeconomic level determinants of informality and tax evasion in Uganda. This paper provides some empirical evidence on how a poor business environment causes tax evasion. In particular, the paper examines specific components of the business environ¬ment that include the efficiency of the legal systems, bureaucratic bribery and the provision of public capital such as adequate provision of electricity and transport infrastructure which is complementary to firm performance and how they relate to tax evasion. I construct an instrument for bureaucratic bribery as the interaction between a firm’s ability to pay and corruption as a business constraint. I compute an individual firm’s ability to pay bribes as the total cost of labour, including wages, salaries, bonuses and social payments adjusted for the level of annual sales. I use instrumental variable OLS and Tobit estimation procedures separately and find that the extent of tax evasion is determined by the quality and efficiency of the legal systems, bureaucratic bribery and inadequate provision of public capital. In addi¬tion I find that the business environment has implications for tax evasion. These results sug¬gest that ameliorating the business environment, strengthening the legal system, adequate provision of public capital such as transport and electricity infrastructure as well as reigning in on bureaucratic bribery will reduce tax evasion and ultimately lead to increasing Govern¬ment revenue collections.
    Keywords: Tax evasion, informality, business environment, EPRC, Community/Rural/Urban Development, Consumer/Household Economics, Demand and Price Analysis, Financial Economics, Industrial Organization, Institutional and Behavioral Economics, Labor and Human Capital, Production Economics, Productivity Analysis, Public Economics,
    Date: 2013–12
  2. By: Carmen Camacho (Centre d'Economie de la Sorbonne); Fabio Mariani (IRES - Université Catholique de Louvain et IZA - Bonn); Luca Pensieroso (IRES - Université Catholique de Louvain)
    Abstract: We build a general equilibrium model in which both illegal immigration and the size of the informal sector are endogenously determined and interact in a non-trivial way. We show that policy measures such as tax reduction and detection of informal activities can be used as substitutes for border enforcement, in order to contrast illegal immigration. In our framework, a welfare-maximising Government will never choose to drive illegal immigration to zero, but will set the tax rate to a lower value if it includes illegal immigration in its objective function
    Keywords: Illegal immigration; Clandestine workers; Informal sector; Shadow economy; Black market; Taxation; Immigration policy
    JEL: O17 F22 J61
    Date: 2015–06
  3. By: Andrea Albarea (Department of Economics, University Of Venice Cà Foscari); Michele Bernasconi (Department of Economics, University Of Venice Cà Foscari); Cinzia Di Novi (Department of Economics, University Of Venice Cà Foscari); Anna Marenzi (Department of Economics, University Of Venice Cà Foscari); Dino Rizzi (Department of Economics, University Of Venice Cà Foscari); Francesca Zantomio (Department of Economics, University Of Venice Cà Foscari)
    Abstract: The paper presents the main characteristics of BETAMOD, a static microsimulation model that reproduces the Italian personal income tax (IRPEF), as well as local income taxes, namely the regional and municipal additional income taxes, building on a detailed reconstruction of tax legislation. With respect to the vast majority of existing tax microsimulation models, the peculiarities of BETAMOD concern two aspects: the inclusion of a detailed set of tax expenditures, and the estimation of individual-specific tax evasion rates, which account for the total individual income level, its composition in terms of income sources, and the geographical area of residence.
    Keywords: Tax-benefit microsimulation, tax evasion, tax expenditures, SILC, Italy
    JEL: C15 C63 H20 H24 H26 H31
    Date: 2015
  4. By: Anna Kosior; Michał Rubaszek; Kamil Wierus
    Abstract: The paper investigates whether differences in the popularity of fixed term contacts on the labour market can be a source of divergent dynamics of unemployment among European Monetary Union economies. For that purpose we construct a database of labor market institutions for a group of eleven euro area countries and years 1995-2013 to conduct a series of dynamic panel regressions. We find a robust and significant impact of duality on unemployment dynamics: high duality rate amplifies its responsiveness to output shocks and lowers its persistence. The heterogeneous unemployment developments, in turn, are a challenge for the conduct of common monetary policy. We conclude that improved stability at both the euro area and country level may be obtained by a coordinated shift to ‘single-contract’ that closes the disproportion between temporary and regular contracts.
    Keywords: Dual labour market, Monetary Union, Panel Data
    JEL: C23 F02 J68
    Date: 2015
  5. By: Orazio Attanasio; Arlen Guarín (Banco de la República de Colombia); Carlos Medina (Banco de la República de Colombia); Costas Meghir
    Abstract: We use experimental data of a training program in 2005 in Colombia. We find that even up to ten years ahead, the JeA program had a positive and significant effect on the probability to work in the formal sector, and to work for a large firm. Applicants in the treatment group also contributed more months to social security during the analyzed period. Earnings of treated applicants were 11.8% higher in the whole sample, and they made larger contributions to social security. We also present non parametric bounds showing that for some percentiles of the sample of women, there are positive and nearly significant effects of the program. Thus, the effects of the program would have been capitalized both in increases in the likelihood of being formal, and increases in productivity. We also present evidence that the estimated program effects on the likelihood of working for the formal sector, the likelihood of working for a large firm, and the earnings in the formal sector, are not an artifact of analyzing multiple outcomes. We also find those in the treatment group have 0.315 more years of education, and have a probability of graduating from high school 10 percent higher than the control group. We find no significant effect on the probability of attending college or any school program, nor on fertility decisions, marital status or some dimensions of assortative mating. Among applicants matching to the census of the poorest population, we find that beneficiaries are more likely to participate in the labor market, to be employed, and to be enrolled in a private health insurance at the time of the survey. Finally, we find that the benefits of the JeA program are higher than it costs, leading to an internal rate of return of at least 22.1 percent. Classification JEL: J24, M53
    Keywords: Vocational Training, Human Capital, Skills, Occupational Choice, Labor Productivity
    Date: 2015–07
  6. By: Shimpei Koike (Department of Value and Decision Science, Tokyo Institute of Technology); Mayuko Nakamaru (Department of Value and Decision Science, Tokyo Institute of Technology); Tokinao OTAKA (Department of Social Engineering, Tokyo Institute of Technology); Hajime Shimao (Department of Value and Decision Science, Tokyo Institute of Technology); Ken-Ichi Shimomura (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan); Takehiko Yamato (Department of Social Engineering, Tokyo Institute of Technology)
    Abstract: Rotating savings and credit associations (Roscas) are worldwide informal financial institutions, in which all participants contribute to a fund and one of them receives it in rotation. A crucial problem is that participants have incentives to default on contributing after receiving the fund. We conducted an experiment and found that Roscas were sustained using a rule of excluding defaulters from the group by voting. We observed that group members behave reciprocally and revengefully: a member contributed (or did not contribute) to the fund of other members who had (or had not) contributed to theirs. This voluntary behavior sustained Roscas.
    Date: 2015–07

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