nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2016‒05‒08
four papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. "Flattening" the Tax Evasion: Evidence from the Post-Communist Natural Experiment By Filer, Randall K.; Hanousek, Jan; Lichard, Tomáš; Torosyan, Karine
  2. Optimal Tariffs with Smuggling: A Spatial Analysis of Nigerian Rice Policy Options By Johnson, Michael; Dorosh, Paul
  3. The scramble for Africans: demography, globalisation and Africa’s informal labour markets By Kate Meagher
  4. Building the City: Sunk Capital, Sequencing and Institutional Frictions By J. Vernon Henderson; Tanner Regan; Anthony J. Venables

  1. By: Filer, Randall K.; Hanousek, Jan; Lichard, Tomáš; Torosyan, Karine
    Abstract: We analyze the response of tax evasion to the introduction of a flat tax in several transition economies. Using a novel estimator based on household level data, we show that in most of the studied countries there was no discernible effect on the measured size of unreported income following flat tax reform. This may imply that decreases in marginal tax rate may frequently have been accompanied by parallel deterioration in attitudes towards public services and these countries' government in general as the only countries that show a response to the flat tax reform appear to be those where satisfaction with government services increased. Additionally, our results show a pro-cyclicality of the size of the shadow economy that is in line with previous research.
    Keywords: consumption-income gap; Flat tax; tax evasion; tax reform; underreporting
    JEL: C34 H26
    Date: 2016–04
  2. By: Johnson, Michael; Dorosh, Paul
    Abstract: This paper assesses the difficulties inherent with raising the rice import tariff in Nigeria given the problem of smuggling, and under such conditions, whether there is an optimal tariff rate that the Nigerian government can consider, especially when the effects are likely to vary by location. Using a spatial multi-market model for rice, results show that an optimal tariff rate of 37 percent does exist if smuggling cannot be controlled. The effects of higher tariffs can have different effects on price changes, trade flows, and ultimately, household welfare in different parts of the country. Most notably but not surprising, consumers in the south could face much higher welfare losses, especially in urban areas as prices increase more when imports flow in from the north. On the other hand, smuggled imports in the north actually help dampen the effect of the tariff on prices in this region and in the central region.
    Keywords: Optimal tariff, smuggling, spatial market equilibrium model, rice, Nigeria, Agricultural and Food Policy, International Relations/Trade,
    Date: 2015
  3. By: Kate Meagher
    Abstract: Images of an 'African Boom' have presented us with labour markets full of dynamic potential: a declining dependency ratio, low levels of unemployment, and a vibrant middle class. This buoyant view of African labour markets conceals a less encouraging reality of catastrophic youth unemployment and expanding informality, creating a 'youth bulge' that is more of a threat than an opportunity. How does the continent with the largest share of informal labour in the world become a beacon of prosperity? Whose prosperity are we talking about? As the Bottom of the Pyramid strategies of MNCs penetrate African informal economies, are we witnessing the global integration of African informal labour, or an increasingly unstable process of 'adverse incorporation'? This paper will explore the reality beneath the outbreak of labour market optimism, and consider why African labour markets are being painted in such rosy colours.
    JEL: J1 R14 J01
    Date: 2016–04
  4. By: J. Vernon Henderson; Tanner Regan; Anthony J. Venables
    Abstract: This paper models a growing city, and focuses on investment decisions and consequent patterns of land use and urban density. We distinguish between formal and informal sector construction. The former can be built tall (at a cost), but structures once built are durable and cannot be modified. Investments are based on expectations about future growth of the city. In contrast, informal structures are malleable and do not involve sunk costs. As the city grows areas will initially be developed informally, and then formally; formal areas are redeveloped periodically. This process can be hindered by land right issues which raise the costs of converting informal to formal sector development. The size and shape of the city are sensitive to the expected returns to durable investments and to the costs of converting informal to formal sector usage. We take the model to data on the built environment for Nairobi, to study urban growth and change between 2004 and 2015 in a context where population is growing at about 4% a year. We study the evolution of building footprints and heights, development at the fringe, infilling, and redevelopment of the formal sector.
    Keywords: city, urban, urban growth, slum development, urban structure, urban form, housing investment, capital durability
    JEL: O14 O18 R1 R3
    Date: 2016–04

This nep-iue issue is ©2016 by Catalina Granda Carvajal. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.