nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2016‒02‒23
four papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Earnings Premiums and Penalties for Self-Employment and Informal Employees around the World By Gindling, T. H.; Mossaad, Nadwa; Newhouse, David
  2. Book-tax conformity and reporting behavior: A quasi-experiment By Evers, Maria Theresia; Meier, Ina; Nicolay, Katharina
  3. A More Precise Approach to Fiscal Consolidation and Sustainability By Afonso, Sérgio
  4. Effective Cost of Borrowing from Microfinance Institutions By Tutlani, Ankur

  1. By: Gindling, T. H. (University of Maryland, Baltimore County); Mossaad, Nadwa (University of Maryland, Baltimore County); Newhouse, David (World Bank)
    Abstract: This paper examines the earnings premiums associated with different types of employment in 73 countries. Workers are divided into four categories: Non-professional own-account workers, employers and own-account professionals, informal wage employees, and formal wage employees. Approximately half of the workers in low income countries are nonprofessional own-account workers and the majority of the rest are informal employees. Fewer than 10% are formal employees, and only 2% of workers in low income countries are employers or own-account professionals. As per capita GDP increases, there are large net shifts from non-professional own account work into formal wage employment. Across all regions and income levels, non-professional own-account workers and informal wage employees face an earnings penalty compared to formal wage employees. But in low income countries, this earnings penalty is small, and non-professional own-account workers earn a positive premium relative to all wage employees. Earnings penalties for non-professional own account workers tend to increase with GDP and are largest for female workers in high income countries. Men earn greater premiums than women for being employers or own-account professionals. These results are consistent with compensating wage differentials and firm quasi-rents playing important roles in explaining cross-country variation in earnings penalties, and raise questions about the extent to which the unskilled self-employed are rationed out of formal wage work in low-income countries.
    Keywords: self-employment, informal sector, earnings differentials, development
    JEL: J31
    Date: 2016–02
  2. By: Evers, Maria Theresia; Meier, Ina; Nicolay, Katharina
    Abstract: We examine how a comprehensive change in book-tax conformity affects firms' reporting behavior. To this end, we exploit a Reform Act as a quasi-natural experiment which implied a decrease in book-tax conformity in Germany in 2010. In particular, this reform allows firms to exercise tax accounting options independently from financial accounting. Our study builds on a unique dataset of linked individual financial statements and actual tax return data. It covers roughly 150 incorporated firms for the years 2008 to 2012. Exploiting the exceptional change in conformity, we contribute to the ongoing debate on the impact of booktax conformity. Our results show that profitable companies, which have a clear tax sheltering incentive, actually use the newly introduced reporting leeway to manage taxable income downwards. This is especially attributable to companies exploiting favorable tax depreciation rules. Moreover, we find larger opportunistic tax reporting responses for small companies with less complex and predominantly domestic group structures. In addition, we observe that a decrease in book-tax conformity induces a decrease in the general persistence of taxable income, but at the same time gives rise to higher financial earnings persistence. This corroborates our finding of increased tax sheltering activity in post reform years.
    Keywords: book-tax conformity,book-tax differences,tax sheltering,earnings persistence
    JEL: H20 H25 K34 M41
    Date: 2016
  3. By: Afonso, Sérgio
    Abstract: This paper argues that austerity is not a good solution for fiscal consolidation and sustainability. Therefore, it is imperative to find a new approach. This paper presents a mechanism to improve both tax compliance and fiscal sustainability.
    Keywords: fiscal consolidation, fiscal sustainability, formalization
    JEL: H21 H26 H30 H61 H63
    Date: 2016–01–23
  4. By: Tutlani, Ankur
    Abstract: It has been observed lately that the dependence on moneylenders for borrowing needs of poor borrowers remained stable despite the presence of MFIs, particularly in developing economies. This is surprising given the fact that MFIs charge relatively lower interest rate as compared to moneylenders. The paper explains this trend by arguing that the effective cost of borrowing from MFI is higher relative to the effective cost of borrowing from moneylender. It is due to the additional burden incurred in the form of transaction costs in case of MFI borrowing. Simulation results also support this phenomenon
    Keywords: Microfinance, Group lending, Informal finance, Transaction cost, Effective cost
    JEL: G21 O17
    Date: 2016–02–12

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