nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2017‒09‒17
fourteen papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Restricting or Abolishing Cash: An Effective Instrument for Fighting the Shadow Economy, Crime and Terrorism? By Friedrich Schneider
  2. Tax Evasion, Firm Dynamics and Growth By Emmanuele Bobbio
  3. Tax Evasion and Inequality By Annette Alstadsæter; Niels Johannesen; Gabriel Zucman
  4. Machinery Production Networks and Tariff Evasion By Mateus Silva Chang; Chin-Ho Lin
  5. Determinants of Registration of Unincorporated Enterprises under State Value Added Tax Act in India By Mukherjee, Sacchidananda; Rao, R. Kavita
  6. Banks in Tax Havens: First Evidence based on Country-by-Country Reporting By Vincent Bouvatier; Gunther Capelle-Blancard; Anne-Laure Delatte
  7. Insurance-markets Equilibrium with Sequential Non-convex Market-Sector and Divisible Informal-Sector Labor Supply By Vasilev, Aleksandar
  8. Aggregation with sequential indivisible and continuous labor supply decisions and an informal sector By Vasilev, Aleksandar
  9. WorkSim: A Calibrated Agent-Based Model of the Labor Market Accounting for Workers' Stocks and Gross Flows By Olivier Goudet; Jean-Daniel Kant; Gérard Ballot
  10. Formal and informal household savings: how does trust in financial institutions influence the choice of saving instruments? By Beckmann, Elisabeth; Mare, Davide Salvatore
  11. Les motivations des femmes entrepreneures du secteur informel à Dakar (Sénégal) By DIA, Ibrahima
  12. Les déterminants de l’entrepreneuriat féminin à Dakar Sénégal By Dia, Ibrahima; Bonnet, Jean; Abdesselam, Rafik
  13. Consideraciones para aumentar la participación de los trabajadores por cuenta propia en los sistemas contributivos de protección social en América Latina By Gontero, Sonia; Weller, Jürgen
  14. La estructura de las tarifas de registro en las Cámaras de Comercio y beneficios de sus servicios: impacto sobre la competitividad y la formalidad empresarial By Natalia Salazar Ferro; Carlos Antonio Mesa; Natalia Navarrete

  1. By: Friedrich Schneider
    Abstract: This paper has four goals: First, the use of cash as a possible driving factor of the shadow economy is investigated. Second, the use of cash in crime, here especially in corruption, is also econometrically investigated. The influence is somewhat larger than on the shadow economy, but it is certainly not a decisive factor for bribery activities. Some figures about organized crime are also shown; the importance of cash is diminishing. Third, some remarks about terrorism are made and here a cash limit doesn’t prevent terrorism. Fourth, some remarks are made about the restriction or abolishment of cash on civil liberties, with the result that this will extremely limit them. The conclusion of this paper is that cash has a minor influence on the shadow economy, crime and terrorism, but potentially a major influence on civil liberties.
    Keywords: cash, cash limit, shadow economy, crime, corruption, transnational crime organizations, financial proceeds, money laundering, illegal cross-border flows, tax fraud figures.
    Date: 2017–04
  2. By: Emmanuele Bobbio (Bank of Italy)
    Abstract: Italy's growth performance has been lacklustre in the last two decades. The economy has low R&D intensity; firms are smaller and less likely to grow or exit than firms in other advanced countries; the shadow economy is large. I show how these features arise simultaneously in a Schumpeterian growth model with heterogeneous firms where the tax auditing probability increases with firm size. Tax evasion confers a cost advantage over competitors. In equilibrium, small firms invest less in innovation because growing entails a (shadow) cost of fiscal regularization. Unfair competition forces other firms to lower the mark-up they charge for their new products, reducing the incentive to innovate. Market selection is hampered, further lowering the aggregate growth rate along the extensive margin. I calibrate the model on Italian firm-level data for the period 1995-2006 and find that enforcing taxes would have increased the long-run growth rate from 0.9% to 1.1%. The market share of high type firms would have been 8 percentage points higher and average firm size 25% higher. Also, I find that lowering the tax burden can have a significant impact on growth when the shadow economy is large, while the effect is negligible when taxes are enforced.
    Date: 2017
  3. By: Annette Alstadsæter; Niels Johannesen; Gabriel Zucman
    Abstract: This paper attempts to estimate the size and distribution of tax evasion in rich countries. We combine random audits—the key source used to study tax evasion so far—with new micro-data leaked from large offshore financial institutions—HSBC Switzerland (“Swiss leaks”) and Mossack Fonseca (“Panama Papers”)—matched to population-wide wealth records in Norway, Sweden, and Denmark. We find that tax evasion rises sharply with wealth, a phenomenon random audits fail to capture. On average about 3% of personal taxes are evaded in Scandinavia, but this figure rises to close to 30% in the top 0.01% of the wealth distribution, a group that includes households with more than $45 million in net wealth. A simple model of the supply of tax evasion services can explain why evasion rises steeply with wealth. Taking tax evasion into account increases the rise in inequality seen in tax data since the 1970s markedly, highlighting the need to move beyond tax data to capture income and wealth at the top, even in countries where tax compliance is generally high. We also find that after reducing tax evasion—by using tax amnesties—tax evaders do not legally avoid taxes more. This result suggests that fighting tax evasion can be an effective way to collect more tax revenue from the very wealthy.
    JEL: E21 H26
    Date: 2017–09
  4. By: Mateus Silva Chang (Graduate School of Economics, Keio University); Chin-Ho Lin (Graduate School of Economics, Keio University)
    Abstract: In this paper we followed Fisman and Wei's (2004) approach to estimate the effects of import tariff rates on import tariff evasion. We focus on East Asian countries import of machinery products. Our main objective is to test if the trade realized inside production networks (intra-regional) is less prone to import tariff evasion than imports from countries outside it (inter-regional). In this study we considered the differences in tariff evasion between intra and inter-regional imports; parts and components and final products; and the heterogeneity between electric machinery and transport equipment. The data provide evidences that intra-regional imports are less prone to tariff evasion than inter-regional imports. Besides this, we identify differences in the channels employed to evade tariff. The results suggest that underreport of quantities was the main channel employed in intraregional imports tariff evasion, while inter-regional import tariffs were evaded through unit price misreport.
    Keywords: Tariff evasion, Import tariff, Machinery Production Networks, East Asia
    JEL: F14 K42 H26
    Date: 2017–08–08
  5. By: Mukherjee, Sacchidananda; Rao, R. Kavita
    Abstract: Unincorporated enterprises often bypass formal regulations in general and taxation in particular. Bringing unincorporated enterprises under taxation system is a challenge often faced by tax administrators and it is in this regard the present study explores the factors which influence decision of unincorporated enterprises to get registered with State Value Added Tax (VAT)/ sales tax authority. This analysis is limited to the decision regarding registration. It is not necessary that enterprises which are registered will pay taxes and/or file return- however; the process of registration does provide some information to the tax department for follow up. The study throws up some interesting results for policy makers and tax administrators.
    Keywords: Tax Registration, Unincorporated Enterprises, Informality, Value Added Tax (VAT), Partnership Firms, Proprietary Enterprises, Probit Model, India.
    JEL: H25 H26 H32 L53
    Date: 2017–09–08
  6. By: Vincent Bouvatier; Gunther Capelle-Blancard; Anne-Laure Delatte
    Abstract: Since the Great Financial Crisis, several scandals have exposed a pervasive light on banks' presence in tax havens. Taking advantage of a new database, this paper provides a quantitative assessment of the importance of tax havens in international banking activity. Using comprehensive individual country-by-country reporting from the largest banks in the European Union, we provide several new insights: 1) Tax havens attract large extra banking activity beyond the regular gravity factors (+168% according to our estimates); 2) For EU banks, the main tax havens are located within Europe: Luxembourg, Isle of Man and Guernsey rank at the top of the foreign affiliates; 3) Attractive low tax rates are not sufficient to drive extra activity; 4) High quality of governance is not a driver, but banks avoid countries with weakest governance; 5) Banks also avoid the most opaque countries; 6) The tax savings for EU banks is estimated between €1 billion and €3.6 billion, i.e. 5 and 20% of fiscal revenues.
    Keywords: Tax evasion;International banking;Tax havens;Country-by-country reporting
    JEL: F23 G21 H22 H32
    Date: 2017–09
  7. By: Vasilev, Aleksandar
    Abstract: This paper describes the lottery- and insurance-market equilibrium in an economy with non-convex market-sector employment and informal sector work. In contrast to Vasilev (2016a), the discrete-continuous labor supply decision in this paper is a sequential one, and instead of home production, we focus on informal activity. This still requires a single insurance market to operate - in particular, one for market-sector employment. In addition, given that the labor choice for market- and informal-sector hours is made in succession, the insurance market for market employment needs to close before the- labor supply choice in the grey economy is made. This segmentation is reminiscent of the results obtained in Vasilev (2015) and also a direct consequence of the sequential nature of the discrete-continuous sectoral labor supply decision.
    Keywords: indivisible labor,lotteries,discrete-continuous mix,insurance,informal economy
    JEL: J22
    Date: 2017
  8. By: Vasilev, Aleksandar
    Abstract: The purpose of this paper is to explore the problem of non-convex labor supply decision in an economy with both discrete and continuous labor decisions. In contrast to the setup in Vasilev (2016a), here each household faces a sequential labor market choice - an indivisible labor supply choice in the market sector, and conditional on non-working in the o fficial sector, a divisible hours choice in the informal sector. We show how lotteries as in Rogerson (1988) can again be used to convexify consumption sets, and aggregate over individual preferences. With a mix of sequential discrete and continuous labor supply decisions, aggregate disutility of non-market work becomes separable from market work, and the elasticity of the latter increases from unity to in finity.
    Keywords: Aggregation,Indivisible Labor,Discrete-continuous mix,Informal economy
    JEL: J22
    Date: 2017
  9. By: Olivier Goudet (SMA - Systèmes Multi-Agents - LIP6 - Laboratoire d'Informatique de Paris 6 - CNRS - Centre National de la Recherche Scientifique - UPMC - Université Pierre et Marie Curie - Paris 6); Jean-Daniel Kant (SMA - Systèmes Multi-Agents - LIP6 - Laboratoire d'Informatique de Paris 6 - CNRS - Centre National de la Recherche Scientifique - UPMC - Université Pierre et Marie Curie - Paris 6); Gérard Ballot (CRED - Centre de Recherches en Economie et Droit - UP2 - Université Panthéon-Assas - M.E.N.E.S.R. - Ministère de l'Éducation nationale, de l’Enseignement supérieur et de la Recherche)
    Abstract: This paper presents an agent-based model of the labor market. It simulates the market in the recent period at the aggregate level and at the level of the principal categories of labor, on the basis of the decisions of heterogeneous agents, firms and individuals, who interact. These decisions rely on individual computations of profits and utilities, although rationality is bounded in such a complex environment. The theoretical structure that underlies the decisions is the search concept. We apply this framework to the case of France in 2011. The model is at a scale of 1/4700. It is fairly detailed on the institutions of the labor market that constrain the agents' decisions. Finally it is calibrated by a powerful algorithm to reproduce a large number of variables of interest. The calibrated model presents a consistent accounting system of the gross flows of the individuals between the main states, employment, distinguishing open ended contracts and fixed duration contracts, unemployment and inactivity. The simulation of the gross flows accounts enables us to analyze the patterns of mobility in a way that the observed statistics on gross flows, which are partial, cannot do. The model then characterizes the nature of the labor market under study, reproducing the high proportion of the fixed duration contracts in the hiring flows, and it points to a dualism of the French labor market.
    Keywords: simulation,labor market,segmentation,agent-based model
    Date: 2016–07–06
  10. By: Beckmann, Elisabeth; Mare, Davide Salvatore
    Abstract: We investigate whether trust in different financial institutions influences the choice of saving instruments. Is trust a significant determinant of household saving behavior? How does trust in different financial institutions affect the composition of household savings? Using unique survey data for ten emerging market economies in Central, Eastern and Southeastern Europe, we show that trust in the financial system increases the probability of holding formal savings and the diversification among formal saving instruments. Trust in the financial system and in foreign banks are significantly associated with holding contractual and capital market saving instruments. Trust in the safety of deposit has the largest positive effect on bank savings. Trust in domestic banks increases the likelihood of holding formal savings the most and trust in foreign banks decreases holdings of informal savings the most.
    Keywords: Household finance; Formal savings; Informal savings; Trust in banks; Trust in the financial system.
    JEL: D12 D14 G11 O16 P34
    Date: 2017–08–01
  11. By: DIA, Ibrahima
    Abstract: In developing countries and particular in Senegal the majority of women are poor. Microenterprises created by a part of these women, especially in the informal sector, qualitatively improve their lives and those of their families and arouse increasingly growing interest for public authorities. In Senegal, where the informal sector is an important part of the economy, few researchers were interested in the factors which are likely to push women entrepreneurship in this sector. Based on the data from a field survey we conducted among 107 women entrepreneurs in the informal sector of the area of Dakar, this article attempts to verify if the entrepreneurial choices of these women is linked to socio-cultural factors, economic and / or noneconomic factors using a principal component analysis of motivational factors. Our results are rather surprising and highlight the complexity of the motivational phenomenon. Women rather undertake to satisfy their desire to participate in the welfare of their community.
    Keywords: Entrepreneurship, women, motivation, informal sector
    JEL: A1 J0 J1 J12 J16 O1 O17
    Date: 2017–09–05
  12. By: Dia, Ibrahima; Bonnet, Jean; Abdesselam, Rafik
    Abstract: The purpose of this paper is to understand the determinants of women's entrepreneurship in the informal sector in Dakar (Senegal). It aims mainly at a better knowledge of women's involvement in economic activities through the informal sector. The paper does this in three ways: first, by defining the informal sector and the female entrepreneur through a literature review; second, by adapting theoretical models in entrepreneurship to the Senegalese informal sector and by defining the concept of entrepreneurial culture ; third, by making a discriminating factorial analysis and a barycentric analysis, based on primary data collected from 153 women in Dakar, to describe a woman’s belonging to a category of creation: creation in the formal or large informal sector, creation in the small informal sector and non-creation. The results show that the woman entrepreneurial activity from one sector to another depends on her human, social and cultural capital and confirm the importance of social capital in the female entrepreneurship of the developing countries where the informal sector is highly developed.
    Keywords: female entrepreneurship, informal sector, intentional models, barycentric regression, Dakar.
    JEL: E26 L26 M13 M14
    Date: 2017–03–10
  13. By: Gontero, Sonia; Weller, Jürgen
    Abstract: El trabajo por cuenta propia constituye una fuente crucial de generación de empleo e ingresos en los mercados laborales en América Latina. En algunos países, dos de cada cinco trabajadores están en esta categoría siendo el promedio regional muy superior al de países desarrollados. Estos trabajadores se caracterizan por su gran heterogeneidad en cuanto a niveles de calificación, tareas realizadas, niveles de ingreso, etc. y por sus bajos niveles de registro en la seguridad social, particularmente en regímenes previsionales. Actualmente, la mayoría de los países de la región cuenta con alternativas para que puedan participar en regímenes contributivos pero la cobertura es aún muy baja. Una de las razones es que la contribución es voluntaria en muchos países y donde es obligatoria suele haber dificultades para fiscalizar su cumplimiento debido a la naturaleza misma de muchos de estos trabajos. Asimismo, en esta categoría también hay trabajadores para quieres la participación en regímenes contributivos resulta económicamente muy difícil. Es por esto que el diseño de los regímenes previsionales para estos trabajadores constituye un importante desafío de política. Este documento contribuye a este debate a través de un análisis de las características los trabajadores por cuenta propia, de aspectos relacionados con la medición de informalidad y de las opciones previsionales disponibles en la región.
    Date: 2017–08
  14. By: Natalia Salazar Ferro; Carlos Antonio Mesa; Natalia Navarrete
    Abstract: El objetivo principal de los registros mercantiles es garantizar que las empresas cumplan con la normativa vigente y poner esa información a disposición del público. Así, los registros son “difusores” de información, promueven confianza en las transacciones comerciales, facilitan el acceso al sistema financiero formal y al sistema jurídico y permiten participar en la contratación pública. Los diferentes estudios muestran que el número de trámites, el tiempo que toman y los costos monetarios asociados impactan la probabilidad de que las firmas se registren y por esta vía entren a la formalidad. Dado los diferentes problemas que presenta la estructura del registro mercantil en Colombia, se simularon escenarios hipotéticos con estructuras de tarifas alternativas, acordes con los principios que debería seguir un esquema de precios como estos, y se presentan los efectos en el costo del registro para los diferentes tamaños de empresas y en los resultados financieros de las Cámaras de Comercio.
    Keywords: Cámaras de Comercio, Registro mercantil, Formalización, Competitividad, Colombia
    JEL: G38 L5 O17
    Date: 2017–06–30

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