nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2017‒04‒02
seven papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Shades of Grey: Business Compliance with Fiscal and Labour Regulations By Katherine Cuff; Steeve Mongrain; Joanne Roberts
  3. Communicating to Improve Compliance: Taxpayers’ Feedback on Message and Mode of Delivery in Rwanda By Mukama, Dennis; Karangwa, John; Hakizimana, Naphtal
  4. Income Hiding and Informal Redistribution: A Lab-in-the-Field Experiment in Senegal By Marie Boltz; Karine Marazyan; Paola Villar
  5. Who Is Covered and Who Underreports: An Empirical Analysis of Access to Social Insurance on the Egyptian Labor Market By Roushdy, Rania; Selwaness, Irène
  6. Trade Liberalization and the Costs and Benefits of Informality of Labor: An Intertemporal General Equilibrium Model for Egypt By Abeer Elshennawy; Dirk Willenbockel
  7. Power Outages and the Productivity of Small and Medium Enterprises: the role of Formality By Lassana Cissokho

  1. By: Katherine Cuff (McMaster University); Steeve Mongrain (Simon Fraser University); Joanne Roberts (University of Calgary)
    Abstract: Firms face many legal regulations, including corporate tax laws and labour laws. There are many ways for firms to evade these legal requirements. Firms may employ workers informally to skip out on safety or health standards or to avoid paying payroll taxes. Firms may also misreport sales transactions to minimize sales or business tax liabilities. Much of the literature examining firm behaviour assumes that a firm's decision to evade one type of regulation (such as labour regulation) is perfectly linked to the decision to evade another (such as corporate income taxes). In this paper, we separate these two evasion decisions and allow firms to decide whether to evade labour market regulations (including the payment of payroll taxes) independently from their decisions to evade business taxes. We find that the design of the tax system and firm entry decisions generate both positive and negative correlations between these two evasion decisions. We characterize the firms’ optimal entry and evasion behavior and derive the government's optimal tax policies. A pure pro t tax system with no payroll tax system, which is optimal in absence of business tax evasion, is no longer desirable when such evasion must be considered.
    Keywords: Informal Labour Market; Labour Regulation; Tax Evasion; Payroll taxes; Corporate Income Taxes
    JEL: H32 H26 K42
    Date: 2017–03
  2. By: Akif Musayev
    Abstract: Purpose of article – classification of economic and institutional components of the tax capacity and determination of current and projected estimates of government efforts. Design/methodology – estimation of the total tax capacity based on active indicators, evaluation of efforts of institutions fiscal policy on the basis of a representative the tax system with the help of modeling tax evasion. Findings – determination of primary tax evasion sectors based on economic (cash transactions, tax revenues, tax credits and exemptions, hidden economy, and so on.) and institutional (legal, administrative, financial etc.) factors, as well as evaluation of their current and expected results. Research limitations – lack of information, potential lost due to illegal activities lawfully and unlawfully established subjects. Practical implications – analysis of the impact of the existing rules on the formation of the tax potential and its taxable portion in the form of tax revenues. Originality/value – estimation of the total tax capacity and proposal of a methodological approach to estimate the impact of change in GDP, as well as legislative and administrative efforts on tax capacity.
    Keywords: Azerbaijan, Tax and public finance, Socio-economic development
    JEL: H00
    Date: 2015–07–01
  3. By: Mukama, Dennis; Karangwa, John; Hakizimana, Naphtal
    Abstract: International Centre for Tax and Development (ICTD) Working Paper 59
    Keywords: Economic Development, Taxation,
    Date: 2017
  4. By: Marie Boltz; Karine Marazyan; Paola Villar
    Date: 2017
  5. By: Roushdy, Rania; Selwaness, Irène
    Abstract: This paper investigates the dynamics and determinants of having access to social insurance coverage on the Egyptian labor market among wage and non-wage workers. The paper explores two issues: the worker- and enterprise- level determinants of having access to social insurance and the risk of underreporting insurable wage to the social security authority. Using data from the Egyptian Labor Market Panel Survey for 1998 and 2006, the likelihood of having access to social insurance coverage is estimated by a probit regression model for all workers, for wage and non-wage workers, separately. Given the potential endogeneity between the type of work and social insurance access, instrumental variable technique is applied. Results show that men, older, married, better educated and white collar highly skilled workers are more likely to be socially insured. Underreporting insurable wages is negatively correlated with education and work experience. High contribution rates requested from both the employer and employee, combined with basing benefits on wages level of the last few years of service, and the weak capacity of law enforcement encourage employers and employees to either not participate in the social insurance system or contribute on amounts that are lower than their actual wage. The paper is one of the few studies that focus on the phenomenon of coverage gap and underreporting salaries to the social security administration.
    Keywords: Social Security,Social Insurance,Informality,Endogeneity,Instrumental variables
    JEL: J46 H55 C36
    Date: 2017
  6. By: Abeer Elshennawy; Dirk Willenbockel
    Abstract: Utilizing an Intertemporal General Equilibrium model for Egypt, this paper seeks to analyze the interaction between informality of labor and trade liberalization. Although it is documented in the literature that trade liberalization can be associated with short run transitional unemployment, we find that in the presence of informal labor markets this seizes to occur. Informality thus reduces the adjustment costs to trade liberalization. Policy makers are thus encouraged to exploit the benefits of informality. Issues related to the sequencing of formalization and trade liberalization were also explored. In this regard, we find that it is not advisable that formalization precedes trade liberalization as the gains foregone by delaying trade policy reform are likely to dominate the outcome. See above See above
    Keywords: Egypt, Trade issues, General equilibrium modeling
    Date: 2015–07–01
  7. By: Lassana Cissokho
    Abstract: The objective of this studypaper is to quantify and analyze the adverse effects of power outages on the productivity of SMEs in Senegal, and to analyse how different this effect is across formal and informal sectors. To measure productivity, two indices of efficiency are considered: the technical and the scale efficiency scores. We analyzed how the measures of power outages affect firms’ productivity, and whether various alternatives to power generation are effective in reducing the potential productivity losses associated with power outages. Our empirical approach is twofold. The first part deals with the estimation of firms’ productivity. To do so, we use a non-parametric approach based on Data Envelopment Analysis (DEA), which is very popular in evaluating firms’ performance (Cooper et al., 2007). The second part uses alternatively each measure of efficiency (technical and allocative) and tries to understand what might drive differences in firms’ performance, in a regression analysis using the generalized linear model. This paper assesses the impact of electricity outages on firms’ productivity in Senegal. Productivity is measured using technical and scale efficiency scores. Results from a generalized linear model, based on survey data from 528 businesses, indicate that power outages have a negative effect on technical and scale efficiency. Further, it apperas that small SMEs are more successful in dealing with scale efficiency. Finding a solution to the power outage issue, and access to loans and/or credit lines affected scale efficiencies. Now it is very likely that sectoral rection differs, as well as the that of formal and informal entities. Formal SMEs, more likely to access to formal banking resources, should suffer less compared to the informal ones. The sectoral effects are likely to be different also.
    Keywords: Senegal, Sectoral issues, Agent-based modeling
    Date: 2015–07–01

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