nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2016‒03‒17
five 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 Locke
  2. Informality in Paraguay; Macro-Micro Evidence and Policy Implications By Mauricio Vargas
  3. Macroeconomic Impacts of Gender Inequality and Informality in India By Purva Khera
  4. International Tax Evasion, State Purchases of Confidential Bank Data and Voluntary Disclosures By Dirk Bethmann; Michael Kvasnicka
  5. Jamaica: Technical Assistance Report-Revenue Administration Gap Analysis Program—The General Consumption Tax Gap By International Monetary Fund

  1. By: Gindling,T. H.; Mossaad,Nadwa; Newhouse,David Locke
    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 non-professional own-account workers and the majority of the rest are informal employees. Fewer than 10 percent are formal employees, and only 2 percent of workers in low-income countries are employers or own-account professionals. As per capita gross domestic product 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 with 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 gross domestic product 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: Labor Management and Relations,Skills Development and Labor Force Training,Labor Policies,Income,Labor Markets
    Date: 2016–01–07
  2. By: Mauricio Vargas
    Abstract: Paraguay’s economy features a high degree of informality. Based on different estimation approaches, informal activity represents more than half of total employment in Paraguay, a higher rate than those observed in its Latin American and the Caribbean peers. Theoretical and empirical considerations support the notion that regulations, enforcement policies, and government effectiveness are the ultimate determinants of informality. In all of these areas Paraguay performs weakly compared to regional peers. Using household and enterprise surveys, we find that Paraguay’s informal sector absorbs the most vulnerable workers but affects negatively medium and large firms in the formal sector. DSGE model simulations suggest that the optimal combination of policies to reduce informality is not straightforward, and needs to reflect the specific circumstances and objectives of the country.
    Keywords: Western Hemisphere;Paraguay;Informal Economy, Labor Regulations, Tax System, economy, income, taxes, gdp, production, Tax System.,
    Date: 2015–11–24
  3. By: Purva Khera
    Abstract: This paper examines the macroeconomic interaction between informality and gender inequality in the labor market. A dynamic stochastic general equilibrium model is built to study the impact of gender-targeted policies on female labor force participation, female formal employment, gender wage gap, as well as on aggregate economic outcomes. The model is estimated using Bayesian techniques and Indian data. Although these policies are found to increase female labor force participation and output, lack of sufficient formal job creation due to labor market rigidities leads to an increase in unemployment and informality, and further widens gender gaps in formal employment and wages. Simultaneously implementing such policies with formal job creating policies helps remove these adverse impacts while also leading to significantly larger gains in output.
    Keywords: Poverty and inequality;India;Gender;Labor markets;Labor force participation;Informal sector;General equilibrium models;gender inequality, informality, DSGE model, Indian economy, Bayesian estimation
    Date: 2016–02–09
  4. By: Dirk Bethmann (Department of Economics, Korea University, Seoul, Republic of Korea); Michael Kvasnicka (Otto von Guericke University Magdeburg, Universitatsplatz 2, 39016 Magdeburg, Germany)
    Abstract: International tax evasion is a major source of discontent for tax authorities. State purchases of bank data on suspected tax evaders from international tax havens constitute one tool to combat such tax evasion. Increasing the risks of detection, such purchases may spur voluntary disclosures for fear of facing charges for tax fraud. Tax authorities in Germany have made repeated use of this tool in recent years, above all in North-Rhine Westphalia, Germany's most populous federal state. Using self-compiled data for North-Rhine Westphalia on the timing and content of data acquisitions and on monthly voluntary disclosures of international tax evasion involving Swiss banks, we study the e ects that such acquisitions had on the evolution of voluntary disclosures over time. Our results show that purchases of data on potential tax evaders had a positive and sizeable e ect on voluntary disclosures. Various robustness checks and additional explorations corroborate this conclusion.
    Keywords: Tax Evasion, Tax Havens, Whistle-blowers, Tax Data, Voluntary Disclosures
    JEL: H2 H3 H26
    Date: 2016
  5. By: International Monetary Fund
    Abstract: This report presents the results of applying the General Consumption Tax (GCT) gap estimation methodology of the Revenue Administration Gap Analysis Program (RA-GAP) to Jamaica for the period 2008–13. The methodology employs a top-down approach for estimating the potential GCT base, using statistical data on value-added generated in each sector. There are two main components to this methodology for estimating the GCT compliance gap: 1) estimate the potential net GCT collections for a given period, and 2) determine the accrued net GCT collections for that period. The difference between the two values is the compliance gap.

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