nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2016‒05‒21
seven papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Self-Concept Maintenance and Tax Evasion By Francesco Flaviano Russo
  2. Taxes Rates, Economic Crisis and Tax Evasion: Evidence using Zimbabwe and South Africa Bilateral Trade Flows By Marko Kwaramba and Calvin Mudzingiri
  3. Extrinsic and intrinsic motivations for tax compliance: evidence from a field experiment in Germany By Nadja Dwenger; Henrik Kleven; Imran Rasul; Johannes Rincke
  4. A study of Egyptian and Palestine trans-formal firms – A neglected category operating in the borderland between formality and informality By Floridi, A.; Wagner, N.; Cameron, J.
  5. Cash-on-hand in Developing Countries and the Value of Social Insurance: Evidence from Brazil By D. G. C. Britto
  6. Building the city: sunk capital, sequencing and institutional frictions By J. Vernon Henderson; Tanner Regan; Anthony J. Venables
  7. Transferencias de ingresos y mercado de trabajo: El impacto de Asignaciones Familiares Plan de Equidad sobre la informalidad laboral By Elisa Failache; Matías Giaccobasso; Lucía Ramírez

  1. By: Francesco Flaviano Russo (Università di Napoli Federico II and CSEF)
    Abstract: I analyze quasi-experimental data on tax evasion reports collected by the Italian webpage I find that a bigger number of reports per unit of irregular activity, which indicates a stronger tax morale, is negatively correlated with the median reported amount. I show that this evidence is consistent with a model of self-concept maintenance, where illegal actions are categorized more easily, in the sense that they are consistent with a positive self image of honesty, if they involve small amounts of money. The data suggest that a stronger individual and social attitude towards evasion makes this categorization more difficult, lowering the threshold below which evasion is acceptable. The result is tax evasion reports of smaller amount. I also propose a Montecarlo exercise to estimate this threshold and its dependence on tax morale.
    Keywords: Tax morale, Categorization, Attention to Standard.
    JEL: H26 K34
    Date: 2016–05–14
  2. By: Marko Kwaramba and Calvin Mudzingiri
    Abstract: Prompted by the theoretical ambiguity in the relationships between tax rates and tax evasion, this study investigates the relationship between tariff (tax) rates and tax evasion using highly disaggregated trade data for Zimbabwe and South Africa. The study uses cross-sectional data analysis for three periods; pre-crisis (1980 to 1999), crisis (2000-2008) and post-crisis (2009-2014). The results show different responses of tax evasion to tariff changes in the three periods. During both the pre-crisis and post-crisis periods, a decrease in tariff rates is associated with a reduction in tax evasion, while during the crisis period, a decrease in tariff rates is associated with an increase in tax evasion. The results suggest that tariff reduction during an economic crisis is not always associated with a decrease in tax evasion. Further disaggregating products using Rauch and UNCTAD product classification show that tariff changes have a positive impact on tax evasion for consumer goods and differentiated products.
    Keywords: Economic crisis, tariff rates, tax evasion, trade flows
    JEL: F14 F18 H26
    Date: 2016
  3. By: Nadja Dwenger; Henrik Kleven; Imran Rasul; Johannes Rincke
    Abstract: We study extrinsic and intrinsic motivations for tax compliance in the context of a local church tax in Germany. This tax system has historically relied on zero deterrence so that any compliance at baseline is intrinsically motivated. Starting from this zero deterrence baseline, we implement a field experiment that incentivized compliance through deterrence or rewards. Using administrative records of taxes paid and true tax liabilities, we use these treatments to document that intrinsically motivated compliance is substantial, that a significant fraction of it may be driven by duty-to-comply preferences, and that there is no crowd-out between extrinsic and intrinsic motivations.
    Keywords: tax compliance; intrinsic motivation; extrinsic motivation; filed experiment
    JEL: C93 H26
    Date: 2016
  4. By: Floridi, A.; Wagner, N.; Cameron, J.
    Abstract: This article outlines a new approach to firm behaviour different from both ‘dichotomist’ and ‘continuum’ formal/informal models. The approach adopts a new heuristic based on the notion of a borderland as space of interaction between dimensions of formality, and creates an umbrella category of trans-formal firms, which are neither purely formal nor informal. Three formality dimensions are adopted: (i) registration of the firm, (ii) existence of a bank account in the name of the firm, and the (iii) presence of an official balance sheet. After elucidating the new approach theoretically, the paper assesses the analytical capacity of the approach with quantitative and qualitative information representing 16 Egyptian and 16 Palestinian firms. The majority of the considered firms are found to be trans-formal moving in a space of decision-making representing our new, broadened notion of borderland showing that policies aiming at formalization processes misrepresent the realities of significant numbers of firms.
    Keywords: institutional economics of the firm, informal economy, borderland economy, (trans-formal) firms, Palestine, Egypt
    Date: 2016–04–28
  5. By: D. G. C. Britto
    Abstract: This paper first exploits a "bonus" policy providing low-income workers with cash grants in Brazil to study the effect of liquidity provision on unemployment outcomes. Based on a RD Design, I find that granting unemployed workers with a bonus equal to half of their previous monthly earnings decreases the probability of exiting unemployment within 8 weeks by around 0.65%. Second, by exploiting the UI potential duration schedule, I find that granting workers with an extra month of unemployment benefits decreases the same outcome by 1.9%. Then, theoretical results from Landais (2014) are used to combine these estimates and disentangle liquidity and moral hazard effects of UI. Based on these, I estimate the liquidity-to-moral hazard ratio in Brazil to be as large as 98%, similarly to values previously found in the US. It suggests that, contrary to common belief, providing UI in developing countries with large informal labor markets may yield substantial welfare gains.
    JEL: I38 J65
    Date: 2016–02
  6. 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: R14 J01
    Date: 2016–04
  7. By: Elisa Failache (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía); Matías Giaccobasso (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía); Lucía Ramírez (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía)
    Abstract: Asignaciones Familiares – Plan de Equidad (AFAM-PE) is a conditional cash transfer program implemented in Uruguay since 2008. It consists in a cash transfer given to households with children under 18 years old experiencing socioeconomic vulnerability. We analyze the impact of AFAM-PE on theprobability of contributing to social security on the household adults’.To this end, and given that programme entrance is based on a score, we apply the RegressionDiscontinuity approach, using the survey “Encuesta de Condiciones de Vida” tailored for the evaluation of this program. In this survey, information about individuals eligible to participate in the program as well as ineligible with similar characteristics is collected. The main results of the analysis are similar to those found for similar programs implemented in Latin America. We found no evidence of significant impact of AFAM PE neither on participation rate, employment, nor hours worked. However, we find that AFAM PE has a positive effect of eleven percent points on the probability of contributing to social security. These effects fall mainly on those responsible for charging the transfer. Furthermore, heterogeneous effects are found, being young, women and members of nuclear families the most affected.
    Keywords: No conditional cash transfers, AFAM-PE, Informality, Impact Evaluation, Uruguay
    JEL: H53 J22 O17 I38
    Date: 2016–01

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