nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2015‒08‒07
four papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Illegal Immigration and the Shadow Economy By Carmen Camacho; Fabio Mariani; Luca Pensieroso
  2. Participation in Informal Off-farm Labor Market and its Impact on Household Income and Food Security in Malawi By Sitienei, Isaac; Mishra, Ashok K.; Gillespie, Jeffrey; Khanal, Aditya R.
  3. The Size of Trade Misinvoicing in Pakistan By Qureshi, Tehseen Ahmed; Mahmood, Zafar
  4. Macroeconomic effects of budget deficits in Uganda: a VAR-VECM approach By Musa, Mayanja Lwanga; Joseph, Mawejje

  1. By: Carmen Camacho (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS); Fabio Mariani (IRES - Institut de Recherches Economiques et Sociales - UCL - Université Catholique de Louvain, IZA - Institute for the Study of Labor - Institute for the Study of Labor (IZA) Bonn); Luca Pensieroso (IRES - Institut de Recherches Economiques et Sociales - UCL - 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.
    Date: 2015–06
  2. By: Sitienei, Isaac; Mishra, Ashok K.; Gillespie, Jeffrey; Khanal, Aditya R.
    Abstract: Most rural households in Malawi often opt to supplement their farm income with additional casual work on the farms of others (“ganyu” labor). However, there is a growing concern that such informal off-farm work will eventually drive rural households into absolute poverty. Using data from a 2010 Malawi household survey, this study seeks to explore this conjecture, first by examining the factors that motivate rural households to participate in informal off-farm work (ganyu) and later evaluate its outcome. Results from the average treatment effect indicate that participating in ganyu increases an individual‟s annual total off-farm income. On the other hand, it has a negative effect on own-farm income.
    Keywords: farm labor, ganyu, food security, poverty, matching estimator, treatment effect, off-farm income, Consumer/Household Economics, Labor and Human Capital,
    Date: 2014–01
  3. By: Qureshi, Tehseen Ahmed; Mahmood, Zafar
    Abstract: Trade misinvoicing has remained a critical issue for the entire developing world. Trade misinvoicing involves misreporting in the invoices of imported and exported commodities for various malign purposes. This study conducted estimation of the extent of trade misinvoicing carried out in Pakistan from 1972-2013 with its 21 developed trading partners in 52 major traded commodities. The study adopted c.i.f./f.o.b. methodology to measure discrepancies in the partner countries data. All four components of trade misinvoicing, i.e., imports under-invoicing, imports over-invoicing, exports under-invoicing and exports over-invoicing are estimated here. The study finds that total trade misinvoicing in Pakistan for the overall period of 41 years was more than $92.7 billion and on average, annual trade misinvoicing is estimated at $2.25 billion. The gross revenue losses incurred to the national exchequer due to trade misinvoicing in the overall period was estimated at $21.2 billion with an annual average of $0.5 billion. Moreover, the total net loss was estimated to be $11 billion for the total period and annually the national exchequer is deprived of $0.26 billion in the form of the evasion of customs duties and exports withholding tax.
    Keywords: Trade Misinvoicing, Revenue Loss, Capital Flight, Reverse Capital Flight
    JEL: F13 F14 H26 K42 O17
    Date: 2015–06–15
  4. By: Musa, Mayanja Lwanga; Joseph, Mawejje
    Abstract: This paper investigates the relationship between budget deficits and selected macroeconomic variables for the period 1999 to 2011 using Vector Error Correction Model (VECM), pairwise granger causality test and variance decomposition techniques. Results indicate that the variables under study are cointegrated and thus have a long run relationship. Results based on the VECM reveal unidirectional causal relationships running from budget deficits (BD) to current account balance (CAB), inflation to BD and BD to lending interest rates. But the results show no causal relationship between gross domestic product (GDP) and budget deficits in Uganda. The Pairwise Granger Causality test results reveal unidirectional causal relationships running from budget deficit to current account, BD to GDP, inflation to BD, and a bi-directional causal relationship between the current account balance and GDP. Variance decomposition results show that, variances in the current account balance and GDP are mostly explained by the budget deficit followed by lending interests while variance in lending interest rates is mostly explained by inflation followed by GDP, variance in the Inflation is mostly explained by variance in lending interest rates followed by the current account balance. The results from the study clearly show that budget deficits in Uganda are responsible for widening current account deficit and raising interest rates. Fiscal and monetary policy actions are therefore needed to contain and reduce the deficit in order to minimize its effect on the current account and lending interest rates. Such actions should aim at increasing Uganda’s tax revenue collection by adopting efficient and effective methods of tax collection. Such policies should see a reduction in the informal sector which has proved difficult to tax and a reduction in ineffective tax exemptions. Government should improve and heighten its efforts in combating tax evasion and corruption which undermine its tax collection efforts
    Keywords: Budget Deficits, macroeconomic performance, VAR, Uganda JEL Classification: C5, E6, H5, Agricultural Finance, Financial Economics,
    Date: 2014–06

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