nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2017‒08‒13
six papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Structural Change, Expanding Informality and Labour Productivity Growth in Russia By Ilya B. Voskoboynikov
  2. The Informal Economy in Sub-Saharan Africa; Size and Determinants By Leandro Medina; Andrew W Jonelis; Mehmet Cangul
  3. City Size, Distance and Formal Employment Creation By O´Clery, Neave; Lora, Eduardo
  5. Global Inspection Games (GIG) in the laboratory By Sanchez Villalba, Miguel
  6. The Evolution of Potential VAT Revenues and C-Efficiency in Advanced Economies By Junji Ueda

  1. By: Ilya B. Voskoboynikov (National Research University Higher School of Economics)
    Abstract: Recent decades have been years of intensive growth, structural change and expanding informality for many developing and emerging economies. However, in exploring the relationship between structural change and productivity growth, most empirical studies ignored informality. This paper explores how structural change in the Russian economy 1995–2012 affects aggregate labour productivity growth, taking into account the informal sector. Using a newly developed dataset for 34 industries and applying three alternative approaches aggregate labour productivity growth is decomposed into intra-industry and inter-industry contributions. All three approaches show that the overall contribution of structural change is growth enhancing, significant, and dumped in time. In turn, labour reallocation between the formal and informal sectors is growth reducing because of the extension of informal activities with low productivity levels. At the same time, sectoral labour reallocation effects are found to be highly sensitive to the methods.
    Keywords: labour productivity, structural change, informal economy, Russia
    JEL: O11 O17 C82 N14
    Date: 2017
  2. By: Leandro Medina; Andrew W Jonelis; Mehmet Cangul
    Abstract: The multiple indicator-multiple cause (MIMIC) method is a well-established tool for measuring informal economic activity. However, it has been criticized because GDP is used both as a cause and indicator variable. To address this issue, this paper applies for the first time the light intensity approach (instead of GDP). It also uses the Predictive Mean Matching (PMM) method to estimate the size of the informal economy for Sub-Saharan African countries over 24 years. Results suggest that informal economy in Sub-Saharan Africa remains among the largest in the world, although this share has been very gradually declining. It also finds significant heterogeneity, with informality ranging from a low of 20 to 25 percent in Mauritius, South Africa and Namibia to a high of 50 to 65 percent in Benin, Tanzania and Nigeria.
    Keywords: Uganda;South Africa;Rwanda;Senegal;Seychelles;Sierra Leone;Sudan;Swaziland;Tanzania;Togo;Zambia;Zimbabwe;Congo, Democratic Republic of the;Congo, Republic of;Djibouti;Equatorial Guinea;Eritrea;Ethiopia;Angola;Benin;Burkina Faso;Burundi;Cameroon;Central African Republic;Chad;Comoros;Kenya;Lesotho;Liberia;Gabon;Gambia, The;Ghana;Guinea;Guinea-Bissau;Madagascar;Malawi;Mali;Mauritania;Mauritius;Mozambique;Namibia;Niger;Nigeria;Informal economy, MIMIC estimation methods, Sub-Saharan Africa
    Date: 2017–07–10
  3. By: O´Clery, Neave; Lora, Eduardo
    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 priori 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.
    Keywords: Ciudades, Educación, Investigación socioeconómica, Sector privado, Trabajo y protección social,
    Date: 2016
  4. By: Nino Kokashvili, Irakli Barbakadze, Ketevani Kapanadze
    Abstract: This paper examines the relationship between the growth of Latvian firms and their involvement in the shadow economy in 2015. When up to 10% of the overall economic activity of firms is in the shadow economy, this had a growth-enhancing effect on firms that recorded non-positive growth during the last five years. Using the perceptions of corruption and interview languages as instruments of measuring the shadow economy participation rate, the authors conclude that there is a positive relationship between perceptions of corruption and the shadow economy participation rate.
    Keywords: Shadow Economy, Firm Growth, Company Managers, Latvia
    JEL: O17 E26 E24 J28 D22
    Date: 2017
  5. By: Sanchez Villalba, Miguel
    Abstract: Sanchez Villalba (2015) claims inspection games can be modelled as global games when agents face common shocks. For the tax evasion game -his leading example- he prescribes that the tax agency should audit each individual taxpayer with a probability that is a non-decreasing function of every other taxpayer's declarations ("relative auditing strategy"). This paper uses experimental data to test the predictions of the model and finds supporting evidence for the hypothesis that the relative auditing strategy is superior to the alternative "cut-off" one. It also finds that data fit the qualitative predictions of the global game model, regarding both participants' decisions and the experiment's comparative statics.
    Keywords: Global Games, Experimental Economics, Tax Evasion, Rationality, Information, Beliefs
    JEL: C7 C91 D8 H26
    Date: 2017–08
  6. By: Junji Ueda
    Abstract: To understand the cyclical movements of value-added tax (VAT) revenues in advanced economies, this paper analyzes changes in the C-efficiency ratio by decomposing it into changes in the compliance and policy gaps between 2000 and 2014. The results from a panel of EU member countries and Japan suggest that the cyclicality of C-efficiency is explained by the correlation of both gaps with the output gap. The cyclicality of the compliance gap appears to be short lived, and larger in countries with high compliance gaps. The cyclicality of the policy gaps largely reflects not changes in policy parameters, but rather, behavior-induced changes, notably in government consumption and, to a lesser degree, in the composition of household consumption.
    Keywords: Tax compliance;value-added tax, tax gap, C-efficiency ratio, elasticity of tax revenue, General, Business Taxes and Subsidies
    Date: 2017–07–11

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