nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2016‒06‒04
six papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Determinants of Changing Informal Employment in Brazil, 2000–2010 By Fairris, David; Jonasson, Erik
  2. Early Fertility and Labor Market Segmentation: Evidence from Madagascar By Herrera, Catalina; Sahn, David; Villa, Kira
  3. Employment Protection and the Labor Informality of the Youth: Evidence from India By Daniel Schwab
  4. Illicit Financial Flows: concepts and first macro estimates for Belgium and its 18 preferred partner countries. By Jozef Pacolet; Joris Vanormelingen
  5. Fiscal burden differentiation between European Union countries as a source of opportunism, moral hazard and unproductive entrepreneurship By Andrzej Pestkowski

  1. By: Fairris, David; Jonasson, Erik
    Abstract: This paper explores possible causal determinants of changing wage and salary informality over the period 2000–2010 in Brazil. We utilize demographic census and other institutional data sources from the opening and closing years of the decade, informality regressions in both years that exploit variation across workers and municipalities in informality rates and their causal determinants, and a Blinder-Oaxaca decomposition of changing mean informality rates over the decade. Among the determinants considered are: changes in labor law enforcement, a near doubling of the real value of the minimum wage, the emergence and growth of conditional cash transfer programs, and changing industry composition and labor force demographics. We find that two of the most important policy changes over this period – the increase in the real value of the minimum wage and the dramatic expansion of conditional cash transfer programs – contribute positively, not negatively to informality. Among the factors accounting for the decline in mean informality rates over this time are rising rates of labor law enforcement, rising education levels, increased numbers of workers with spouses in the formal sector, and changes in industry composition, which explain between 16% and 57% of the mean decline in informality over the period. However, most of the decline is accounted for by the changing estimated coefficients on the industry categorical variables – that is, by the changing way in which industrial composition translates into informality.
    Keywords: Brazil, informal employment, labor law enforcement, Bolsa Familia
    JEL: J22 J23 J46 O17
    Date: 2016–02–28
  2. By: Herrera, Catalina; Sahn, David; Villa, Kira
    Abstract: Women represent the majority of informal sector workers in developing countries. This is especially true in Sub-Saharan Africa where early childbearing rates are still high. However, to date, there is little empirical evidence on the role of early fertility in female labor force participation in the informal sector. We analyze the effect of young women’s timing of first birth on her entry into the labor market and selection into different types of employment. Using a panel survey in Madagascar, designed to capture the transition from adolescence to adulthood, and a multinomial approach, we estimate the effect of early childbearing on selection into four employment categories: non-participation, informal, formal, and student. Our results suggest that young mothers are more likely to work than young women without children. However, women whose first birth occurred during adolescence largely select into low-quality informal jobs. This effect is partially, but not entirely, mediated by the effect of adolescent pregnancy on schooling.
    Keywords: Fertility, informal sector, adolescence, female labor force participation, Madagascar, International Development, Labor and Human Capital, J24, O15, J1,
    Date: 2016
  3. By: Daniel Schwab (Boston University)
    Date: 2016
  4. By: Jozef Pacolet (HIVA, KU Leuven); Joris Vanormelingen (HIVA, KU Leuven)
    Abstract: There is a growing awareness that illicit financial flows and the shadow economy might have a substantial impact on the financing of development. This paper provides a disentanglement of the definitions, sources and causes and measurement methodologies used and a first quantitative estimate for the 18 partner countries for development of Belgium. An overview of methodologies for defining the shadow economy, the informal economy, illicit financial flows and capital export has been provided, and based on those secondary sources a first macro estimate of their size has been provided for the 18 preferred partner countries for Belgian governmental development cooperation, together with some core macro-economic indicators. As a benchmark similar information is provided for the ‘Low Countries’ or Benelux. All those studies on the underground economy are in search of a ‘dark figure’ that risks to become, as some scholars call it, ‘facts by repetition’. More than 2 trillion euro undeclared economy in the EU, 1 trillion euro missed tax revenue in the same EU, they became officially quoted figures but they go back to the same, sometimes criticised source of information. Almost 1 trillion USD illicit financial flows worldwide is a similar fact that is cited over and over again. But it remains the best practical starting point to look for further evidence or understanding of those phenomena in the 18 partner countries. 46 billion USD illicit financial flows or 3.5% of their GDP are estimated for the 18 partner countries of Belgium (around 2012). 261 billion USD estimated underground economy or some 31.6% of GDP of those 18 countries (around 2007). Ten times more, as share of GDP. Both figures reveal the massive potential importance for financing of development.
    Keywords: illicit financial flows, financing for development
    JEL: F39
    Date: 2015–07
  5. By: Andrzej Pestkowski (Wroclaw University of Economics)
    Abstract: Free movement and freedom of establishment existing within the European Union institutions are the main factors which make European Union open for business activities. However, it should be noted that all EU countries have their own tax systems and fiscal policy. This, in turn, differentiates fiscal burden of government imposed onto its taxpayers in each Member State. These differences frequently distort the conditions of establishment. As every entrepreneur is willing to minimize costs, especially when their source are compulsory taxes, mass tax migration between Member States might be expected. Tax avoidance and tax evasion, being a form of tax migration, imply numerous economic, social and legal problems. The aim of this paper is to identify these problems along with their causes and effects in terms of fiscal burden differentiation between Member States. Descriptive, qualitative and quantitative analyses have been applied in order to explain the abovementioned phenomena. Additionally, the analyses have been accompanied by case studies.
    Keywords: fiscal burden; tax systems; opportunism; moral hazard; unproductive entrepreneurship
    JEL: E26 H26 K34 K42
    Date: 2016–05
    Date: 2016

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