nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2016‒12‒04
four papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Assessing the Effect of Payroll Taxes on Formal Employment: The Case of the 2012 Tax Reform in Colombia By Leonardo Fabio Morales; Carlos Medina
  2. Exploring Online and Offline Informal Work : Findings from the Enterprising and Informal Work Activities (EIWA) Survey By Barbara J. Robles; Marysol McGee
  3. Problematic response margins in the estimation of the elasticity of taxable income By Kristoffer Berg; Thor O. Thoresen
  4. Demonetisation: Impact on the Economy. By Tax Research Team

  1. By: Leonardo Fabio Morales (Banco de la República de Colombia); Carlos Medina (Banco de la República de Colombia)
    Abstract: In 2013 Colombia implemented a tax reform which, among other things, reduced payroll taxes by a total of 13.5 percentage points of wages. In this paper we evaluate the effects of this component of the 2012 Colombian tax reform on firms’ formal employment and average wages. We construct a panel of firms based on their employees’ administrative records. In order to account for the endogeneity of the treatment, we use an instrumental variables technique that exploit the exogenous variation from the decisions of firms that are similar to each other in several dimensions, but belong to different economic sectors. Based on our preferred specification, we estimate a positive and significant increase in formal employment, as a result of the implementation of the reform, of a proximately 213k jobs in existing pre-reform firms. In the long run, these effects will increase to more than 600k jobs. The effect of the reform on the average wages paid by firms was also found to be positive for some sizes of firms, but the overall effect in the short run is rather small. **** En el año 2013 Colombia implementó una reforma tributaria que, entre otros cambios, redujo en 13.5 puntos porcentuales los impuestos a la nómina que las firmas son responsables de pagar. En este trabajo se realiza una evaluación de impacto de este componente particular de la reforma sobre empleo formal y salarios promedio pagados por las firmas. Para este fin se construye un panel de firmas formales usando datos administrativos de la planilla integrada de liquidación de aportes. Con el fin de controlar por posibles problemas de endogeneidad de la variable de tratamiento se usa una técnica de variables instrumentales que explota la variación exógena de decisiones de firmas que son similares entre sí en varias dimensiones, pero pertenecen a diferentes sectores económicos. Con base en la especificación preferida en el trabajo se concluye que, como resultado de la reforma se generaron en el corto plazo 213 mil nuevos trabajos formales en firmas que existían previamente a la reforma. En el largo plazo este efecto en empleo formal se incrementará a casi 600 mil nuevos empleos formales. El efecto de la reforma en el salario medio pagado por las firmas se estima positivo para algunos tamaños de firmas, sin embargo este efecto en el corto plazo es de una magnitud reducida. Classification JEL: E62, H25, J21, J3
    Keywords: fiscal policy, payroll taxes, formal employment, formal wages
    Date: 2016–11
  2. By: Barbara J. Robles; Marysol McGee
    Abstract: The growing prevalence of alternative work arrangements has accelerated with the rapidly evolving digital platform transformations in local and global markets (Kenny and Zysman, 2015 and 2016). Although traditional (offline) informal paid work has always been a part of the labor sector (BLS-Contingent Worker Survey, 2005; GAO, 2015 and Katz and Krueger, 2016), the rise of online enabled paid work activities requires new approaches to measure this growing trend (Farrell and Greig, 2016; Gray et al, 2016; Sundararajan, 2016 and Schor, 2015). In the fourth quarter of 2015, the Federal Reserve Board conducted a nationally representative survey of adults 18 and older to track online and offline income-generating activities as well as their employment status during the six months prior to the surveys. Survey results indicate that 36 percent of respondents undertook informal paid work activities either as a complement to or as a substitute for more traditional and formal work arrangements. We explore the rationale behind respondents' participation in alternative work arrangements by setting questions that capture participant motives and attitudes towards informal offline and online paid work activities. Sixty five percent of qualified survey respondents indicate that a main reason for participating in informal work is to earn extra income.
    Keywords: Digital economy ; On-demand economy ; Platform economy ; Gig economy ; The collaborative economy ; Sharing economy ; Informal paid work ; Online and offline paid work ; Online fee for tasks ; Fee-for-tasks ; Supplemental income generation ; Income-patching
    JEL: J00 L8 O0 R00 H8
    Date: 2016–10
  3. By: Kristoffer Berg; Thor O. Thoresen (Statistics Norway)
    Abstract: The elasticity of taxable income (ETI) is known to represent a summary measure of tax efficiency costs, which means that further information about the behavioral components of the ETI is not required for its use in tax policy design. However, as there are response margins that may cause biases in the estimation of the elasticity, we advise against neglecting information about the composition of the behavior seized by the ETI. When using responses of the Norwegian self-employed to the tax reform of 2006 for illustration, we discuss how four different responses relate to the overall ETI, given characteristics of the reform. Effects on working hours, on tax evasion, and from shifts in organizational form and across tax bases are discussed in terms of to what extent they represent sources to estimation bias, or enter into the ETI in a decompositional way. We provide empirical illustrations of the effects of each of these margins, and we show that the estimated ETI is biased downward because of organizational shifts.
    Keywords: elasticity of taxable income; self-employed; tax evasion; organizational shift
    JEL: H24 H26 H31 J2
    Date: 2016–11
  4. By: Tax Research Team (National Institute of Public Finance and Policy)
    Abstract: The argument posited in favour of demonetisation is that the cash that would be extinguished would be black money and hence, should be rightfully extinguished to set right the perverse incentive structure in the economy. While the facts are not available to anybody, it would be foolhardy to argue that this is the only possibility. Therefore, it is imperative to evaluate the short run and medium-term impacts that such a shock is expected to have on the economy. Further, the impact of such a move would vary depending on the extent to which the government decides to remonetise. This paper elucidates the impact of such a move on the availability of credit, spending, level of activity and government finances.
    Keywords: demonetization ; cashless transactions ; credit ; tax evasion
    JEL: H25 H27
    Date: 2016–11

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