nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2017‒01‒22
six papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Family Ties and Underground Economy By Mare, Mauro; Motroni, Antonello; Porcelli, Francesco
  2. Military expenditures and shadow economy in the Baltic States: Is there a link? By Fedotenkov, Igor; Schneider, Friedrich
  3. New evidence on the wage curve: non-linearities, urban size, and spatial scale in Brazil By Ana Maria Bonomi Barufi; Eduardo A. Haddad, Peter Nijkamp
  4. Can Enhancing the Benefits of Formalization Induce Informal Firms to Become Formal? Experimental Evidence from Benin By Benhassine, Najy; McKenzie, David J.; Pouliquen, Victor; Santini, Massimiliano
  5. Myanmar's cross-border trade with China : beyond informal trade By Kubo, Koji
  6. Flujos financieros ilícitos en los países andinos: una mirada al sector minero By Hanni, Michael; Podestá, Andrea

  1. By: Mare, Mauro; Motroni, Antonello; Porcelli, Francesco
    Abstract: This paper reports empirical evidence supporting the hypothesis that family ties should be listed among the causes of tax evasion. In societies where the power of the family is very high, the quality of public institutions tends to be low. This connection shapes the behavior of taxpayers and generates underground economy. The econometric analysis is based on linear panel data models, and a new dataset that combines data on personal values, social capital, and tax morale, in combination with an index of the shadow economy. The final results show that countries where family ties are stronger also exhibit higher underground economy.
    Keywords: family ties, tax evasion, corruption, panel dat
    JEL: C23 H26
    Date: 2016–06
  2. By: Fedotenkov, Igor; Schneider, Friedrich
    Abstract: The main goal of our paper is to determine the existence of a link between government (military) expenditures and the shadow economy in the Baltic States. The empirical investigation is done over the years 2003-2014 for Estonia, Latvia and Lithuania. We showed that there is a highly statistically significant positive dependence between the size of the shadow economy and military expenditures in the Baltic States. Our conclusion is that higher military expenditures indeed lead to a higher shadow economy and this result is robust to different model specifications. In order to demonstrate the importance of our highly statistically significant results we undertook a simulation where we calculated how much the size of the shadow economy would increase if the size of military expenditure as a percentage of GDP doubled: In Estonia such an expansion would have led to an increase in the size of the shadow economy from 27.1% to 30.1%, in Latvia from 24.7% to 26.1% and in Lithuania from 27.1% to 28.4% in 2014.
    Keywords: Shadow economy, military expenditures, Baltic States
    JEL: E26 E62 H26 H50 H56 O17
    Date: 2017–01–02
  3. By: Ana Maria Bonomi Barufi; Eduardo A. Haddad, Peter Nijkamp
    Abstract: Agglomeration economies appear to have a significant impact on local labour markets. The interaction of workers and firms in dense urban areas may generate productivity advantages that result in higher wages. City size plays an important role in the relative bargaining power of workers and firms in the relevant labour market. When analysing the relationship between local wages and the business cycle – wage flexibility, measured by the wage curve –, this influence appears to be higher in informal sectors in less densely populated areas in Brazil. Therefore, large agglomerations are supposed to provide a higher bargaining power for workers, as they have more job opportunities. In addition, labour market dualism is an essential ingredient in the evaluation of the wage curve in developing economies. However, a dual labour market analysis should be conducted at the appropriate regional level (labour market areas), making it possible to find a relevant impact of city size on the relative bargaining power of workers and firms. Our study aims to shed new theoretical and empirical light on the importance of the wage curve, taking into account various specificities of developing economies. The applied modelling study in Brazil shows that wage flexibility is higher in less dense local labour markets and in the informal sector in relation to the formal sector. Furthermore, it is essential to control for unobserved local characteristics in order to obtain the ‘true’ elasticity of wages to local unemployment rates, and spatial effects should be accounted for when the unit of analysis is rather small. In this sense, a significant part of the difference between the formal and the informal sectors originates from spatial effects.
    Keywords: wage curve; informal sector; bargaining power; agglomeration; rural-urban dichotomy.
    JEL: R12 J31 J46
    Date: 2016–12–16
  4. By: Benhassine, Najy; McKenzie, David J.; Pouliquen, Victor; Santini, Massimiliano
    Abstract: A randomized experiment based around the introduction of the entreprenant legal status in Benin is used to test the effectiveness of supplementary efforts to enhance the presumed benefits of formalization by facilitating its links to government training programs, support to open bank accounts, and tax mediation services. Few firms register when just given information about the new regime, but the full package of supplementary efforts boosts formalization by 16.3 percentage points. Firms that are larger, and that look more like formal firms to begin with, are more likely to formalize, providing guidance for better targeting of such policies
    Keywords: Informality; Regulatory Simplification; Small Enterprises
    JEL: D21 H25 L26 O12 O17
    Date: 2017–01
  5. By: Kubo, Koji
    Abstract: Myanmar's trade with China is heavily concentrated in cross-border trade through the Yunnan province of China. In this qualitative analysis, we examine factors that yield such a concentration from the viewpoint that trade would be concentrated in the channel where transaction costs are relatively low compared with those in other channels. It is almost certain that weak law enforcement at the border gives rise to informal cross-border trade, which allows traders to save the time and costs for compliance with formal procedures. Apart from informality, unique institutional arrangements have been emerging spontaneously in the border area that can reduce transaction costs in a way compatible with formal trade, thus augmenting cross-border trade. Based on observations of thriving trade at Myanmar's border with China, we draw implications for the country's general trade facilitation measures.
    Keywords: International trade, Informal sector, Myanmar, Cross-border trade, Informal trade, Transaction costs of trade
    JEL: F19 O17 O53
    Date: 2016–12
  6. By: Hanni, Michael; Podestá, Andrea
    Abstract: En el presente estudio se investiga acerca de la planificación tributaria de las empresas y otros actores del sector minero en los países andinos, brindando estimaciones de las salidas ilícitas de capital asociadas a la explotación minera y de los recursos tributarios que se dejan de recaudar debido a este tipo de prácticas. Este documento se estructura de la siguiente manera. En el capítulo I se realiza una breve descripción del sector minero de los países andinos y se examinan las principales fuentes de flujos financieros ilícitos provenientes de esta actividad. En el capítulo II se presentan las estimaciones de las salidas ilícitas originadas en la subfacturación de exportaciones mineras como así también el nivel de incumplimiento tributario en el sector extractivo de los países andinos. Por último, la sección III contiene algunas conclusiones y reflexiones finales
    Date: 2016–12

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