nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2015‒12‒28
four papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Reflections on the meaning and measurement of Unobserved Economies: What do we really know about the “Shadow Economy”? By Feige, Edgar L.
  2. The Shadow Economy and Banks’ Lending Technology By Salvatore Capasso; Stefano Monferrà; Gabriele Sampagnaro
  3. Tax Morale and Trust in Public Institutions By Wilfried Anicet Kouamé
  4. Mobile Phones in Conflicts of Financial Intermediation By Simplice Asongu; Vanessa Tchamyou

  1. By: Feige, Edgar L.
    Abstract: This paper reviews the meaning and measurement of unobserved economies germane to tax evasion and macroeconomic information systems. These include the unreported, non-observed, underground, illegal, informal and unrecorded economies. It reviews the progress and shortcomings of national and international agency efforts to measure these unobserved economies, noting what they have in common, what distinguishes one from another and their interconnections. It then examines the meaning of Professor Schneider’s Shadow Economy (SSE), and the veracity of his claim to have accurately estimated its size and trend worldwide by employing a MIMIC model methodology. It concludes that SSE estimates suffer from conceptual flaws, apparent manipulation of results and insufficient documentation for replication, questioning their place in the academic, policy and popular literature.
    Keywords: Tax evasion, shadow economy, non-observed, underground, illegal, informal, unrecorded, MIMIC, cash, National Income and Product Accounts, Schneider.
    JEL: C51 C82 E26 E41 H26 K42 O17
    Date: 2015–12–20
  2. By: Salvatore Capasso (ISSM, CNR and CSEF); Stefano Monferrà (Università di Napoli “Parthenope”.); Gabriele Sampagnaro (Università di Napoli “Parthenope”.)
    Abstract: Is there a relationship between bank monitoring models and the level of shadow economy? This paper develops a model of optimal lending technology to study the relationship between local underground economic activity and banks’ lending choices. In turn, as the aggregate level of informality and tax evasion increase, it becomes more profitable for banks to screen and supervise borrowers using more costly in-depth monitoring technologies. A large dataset of regional Italian data confirms these conjectures.
    Keywords: Shadow economy, lending technology, monitoring
    JEL: G21 H26
    Date: 2015–12–16
  3. By: Wilfried Anicet Kouamé (GREDI, Universite de Sherbrooke)
    Abstract:  One significant puzzle in economics is to explain why people pay their taxes and why there are so many differences in tax compliance across countries. Tax morale literature try to tackle this puzzle with a sparse evidence from the relationship between taxpayers and public authorities (vertical relationship). As a novelty, this paper highlights both theoretically and empirically trust in public institutions as a new explanation to taxpayer’ willingness to comply. The theoretical framework goes beyond the standard model of tax evasion by allowing social norms and interactions with public institutions. For empirical evidence, I use the World Values Survey 2010-2014 to estimate the causal impact of trust in public institutions on tax morale. The findings suggest that in emerging and developing countries, social norms play a great role on tax morale, whereas in advanced countries institutional environment seems to be one of the most important factors. The results remain robust after exploiting and conducting several sensitivity analysis.
    Keywords: public institutions, signal effects, tax morale, tax evasion, trust
    JEL: D70 H26 H31 K42
    Date: 2015–12
  4. By: Simplice Asongu (Yaoundé/Cameroun); Vanessa Tchamyou (Yaoundé/Cameroun)
    Abstract: To the best our knowledge, in the first empirical macroeconomic examination of the nexus between financial intermediation and mobile phones, Asongu employs two conflicting financial system definitions in the assessment of how mobile phones have stimulated financial development in Africa. Within the framework of the dominant International Monetary Fund’s International Financial Statistics (2008) definition, mobile phones are established to be negatively associated with financial intermediary dynamics of depth, activity and size. Conversely, when the previously neglected informal financial sector is integrated into the conception, definition and measurement of the financial system, mobile phones are positively (negatively) correlated with the informal (formal) financial intermediation sector. The empirical evidence is based on 52 African countries. Causality in the established linkages has been confirmed in subsequent studies by the same author. At least three policy implications derive from the findings. First, the role of informal financial intermediation is increasing to the detriment of formal financial mechanisms. Second, in order to capture the positive effect of mobile phones on finance, it is imperative to integrate the missing informal financial sector component into the IMF definition of the financial system. Third, it is a wake-up call for more scholarly research on: (i) macroeconomic financial development implications of mobile phone penetration and (ii) monetary policy instruments in the face of burgeoning ‘mobile phone’-oriented financial intermediation.
    Keywords: Banking; Mobile Phones; Shadow Economy; Financial Development; Africa
    JEL: E00 G20 L96 O17 O33
    Date: 2015–08

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