nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2017‒03‒12
five papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. The Path to Labor Formality: Urban Agglomeration and the Emergence of Complex Industries By Andres Gomez-Lievano; Eduardo Lora; Neave O'Clery
  2. City Size, Distance and Formal Employment By Eduardo Lora; Neave O'Clery
  3. Informal economy in Bolivia: analysis, evaluation and quantification based on cash monetary effective demand approach (period 1994-2014). By Danilo Velasco Valdez
  4. One Size Does Not Fit All: A Field Experiment on the Drivers of Tax Compliance and Delivery Methods in Rwanda By Mascagni, Giulia; Nell, Christopher; Monkam, Nara
  5. Reverting to Informality: Unregistered Property Transactions and the Erosion of the Titling Reform in Peru By Gutierrez, Italo A.; Molina, Oswaldo

  1. By: Andres Gomez-Lievano (Center for International Development at Harvard University); Eduardo Lora (Center for International Development at Harvard University); Neave O'Clery (Center for International Development at Harvard University)
    Abstract: Labor informality, associated with low productivity and lack of access to social security services, dogs developing countries around the world. Rates of labor (in)formality, however, vary widely within countries. This paper presents a new stylized fact, namely the systematic positive relationship between the rate of labor formality and the working age population in cities. We hypothesize that this phenomenon occurs through the emergence of complex economic activities: as cities become larger, labor is allocated into increasingly complex industries as firms combine complementary capabilities derived from a more diverse pool of workers. Using data from Colombia, we use a network-based model to show that the technological proximity (derived from worker transitions between industry pairs) of current industries in a city to potential new complex industries governs the growth of the formal sector in the city. The mechanism proposed has robust strong predictive power, and fares better than alternative explanations of (in)formality.
    JEL: B5 D8 J2 J4 O1 R1
    Date: 2016–10
  2. By: Eduardo Lora (Center for International Development at Harvard University); Neave O'Clery (Center for International Development at Harvard University)
    Abstract: Cities thrive through the diversity of their occupants because the availability of complementary skills enables firms in the formal sector to grow, delivering increasingly sophisticated products and services. The appearance of new industries is path dependent in that new economic activities build on existing strengths, leading cities to both diversify and specialize in distinct areas. Hence, the location of necessary capabilities, and in particular the distance between firms and people with the skills they need, is key to the success of urban agglomerations. Using data for Colombia, this paper assesses the extent to which cities benefit from skills and capabilities available in their surrounding catchment areas. Without assuming a prioria a definition for cities, we sequentially agglomerate the 96 urban municipalities larger than 50,000 people based on commuting time. We show that a level of agglomeration equivalent to between 45 and 75 minutes of commuting time, corresponding to between 62 and 43 cities, maximizes the impact that the availability of skills has on the ability of agglomerations to generate formal employment. Smaller urban municipalities stand to gain more in the process of agglomeration. A range of policy implications are discussed.
    Date: 2016–10
  3. By: Danilo Velasco Valdez (Doctorado en Economía y Administración de Empresas, Universidad Privada Boliviana)
    Abstract: The informal economy represents a set of production and marketing activities that are underestimated by national accounts because they are developed under uncontrollable circumstances or are openly illegal. In this context, it turns to be an opportunity to develop an approach that allows its quantification, using a Cash Demand Model, based on time series for the last twenty years. This paper estimates the size of the informal economy in our country around 54% and 63%, with a decreasing trend for the last decade, which happens to coincide with the last government change. As a phenomenon it has an important economic significance, and deserves a proper analysis and monitoring.
    Keywords: Informal eocnomy, money demand, monetary approach.
    JEL: C10 O10
    Date: 2015–06
  4. By: Mascagni, Giulia; Nell, Christopher; Monkam, Nara
    Abstract: Although field experiments in tax compliance represent a growing area of research, the literature has so far focussed exclusively on high and middle-income countries. This paper starts to fill this gap by reporting the results of a tax field experiment in Rwanda, while also highlighting some characteristics that may be common to other low-income countries. We evaluate an intervention carried out by the Rwanda Revenue Authority (RRA), which involved sending messages to taxpayers to nudge their declaration behaviour during the filing period of January-March 2016. Focussing particularly on business profits tax, our study is designed to address two interrelated questions. First, what are the key drivers of compliance in Rwanda? Second, what is the best delivery method to reach taxpayers with messages designed to improve compliance? Although other studies have explored delivery methods in the context of taxpayer communication, our study is the first one to interact these methods with different message contents. As a result, we evaluate a set of nine treatments that combine three message contents (deterrence, fiscal exchange, reminders) and three delivery methods (letters, SMS, emails) – as compared to a control group that received no message. We find that friendly approaches to taxpayers are generally more effective than deterrence. However, small taxpayers are still quite responsive to the possibility of being fined and prosecuted (deterrence). We also show that low-cost delivery methods like SMS and emails can be highly effective as compared to letters.
    Keywords: Economic Development, Finance, Governance, Poverty,
    Date: 2017
  5. By: Gutierrez, Italo A.; Molina, Oswaldo
    Abstract: Titling programs have focused mostly on providing initial tenure security and have not properly addressed maintaining the formality of future property transactions. Our data indicates that properties become de-regularized due to unregistered transactions in urban slums, which threatens to undo the success of the titling program in the long run. We exploit a natural experiment provided by the elimination of a streamlined registration system targeted for the poor residents in Peru to identify how costly and burdensome registration policies can increase de-regularization. Our analysis indicated that the elimination of such a system led to a significant reduction in the probability of registering transactions, including those that involved a change in ownership. Overall, our findings stress the necessity of building specific components aimed at maintaining properties formal into the design of urban titling programs.
    Keywords: titling programs, registration, property transactions, property rights, natural experiment, Peru
    JEL: P14 O18 R20 R28 K0
    Date: 2016–09

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