nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2017‒11‒19
eight papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Tax Morale and Policy Intervention By Nordblom, Katarina
  2. Tax morale and the role of social norms and reciprocity: Evidence from a randomized survey experiment By Doerrenberg, Philipp; Peichl, Andreas
  3. Inequality, Good Governance and Endemic Corruption By Gil S. Epstein; Ira N. Gang
  4. : In official international trade statistics, annual product-level commerce between every pair of countries is reported twice: once by the importing country and once by the exporter. In principle, the two reported trade values will differ systematically only by transport costs. But as has long been recognized, the product-level reports differ systematically with product-level tariffs. We aggregate across products to construct a dataset of annual country-level bilateral trade, separately for importer and exporter-reported values. These data enable us to reexamine the reporting gaps, this time controlling for country characteristics aside from tariffs. After accounting for distance and other standard trade costs, the remaining gaps between aggregate importer- and exporter-reported trade vary systematically with countriesÕ GDPs, auditing standards, domestic taxes, corruption, and trade agreements. These new results have implications for trade agreements and domestic fiscal policy, and for empirical assessments of the efficacy of those policies. By Derek Kellenberg; Arik Levinson
  5. Informal sector heterogeneity and income inequality: Evidence from the Democratic Republic of Congo By Franck M. Adoho; Djeneba Doumbia
  6. The decline of the labour share in Mexico: 1990–2015 By Carlos A. Ibarra; Jaime Ros
  7. Financial Vulnerability among Tribes in Rural Areas: Certain Observations from a Study By Kumar, Dr.B.Pradeep
  8. ICT, Conflicts in Financial Intermediation and Financial Access: Evidence of Synergy and Threshold Effects By Simplice Asongu; Paul Acha-Anyi

  1. By: Nordblom, Katarina (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: This paper deals with tax morale and how norms may evolve over time. The special focus is on buying black-market services. I apply mechanisms from social psychology to explain how personal norms may evolve due to one's own past behavior through self-signaling and due to conformity based on social interactions. These changes over time result in multiple equilibria, so that the economy can develop stronger social norms and less evasion over time, or weaker norms and more evasion in the long run. An economy on a trajectory toward the “bad” equilibrium may be permanently pushed onto a trajectory toward the “good” equilibrium by means of a suffciently strong temporary policy. Observations from a recent tax reform in Sweden strongly support the theory and suggest that other policies than enforcement may indeed be a powerful tool in inuencing both behavior and attitudes.
    Keywords: Social norms; Endogenous norms; Tax evasion; Self-signaling; Normative conformity.
    JEL: D91 H26
    Date: 2017–11
  2. By: Doerrenberg, Philipp; Peichl, Andreas
    Abstract: We present the first randomized survey experiment in the context of tax compliance to assess the role of social norms and reciprocity for intrinsic tax morale. We find that participants in a reciprocity treatment have significantly higher tax morale than those in a social-norm treatment. This suggests that a potential backfire effect of social norms is outweighed if the consequences of violating the social norm are made salient. We further document the anatomy of intrinsic motivations for tax compliance and present first evidence that previously found gender effects in tax morale are not driven by differences in risk preferences.
    Keywords: Tax compliance,Tax evasion,Intrinsic motivations,Tax morale,Social norms,Reciprocity
    JEL: H20 H32 H50 C93
    Date: 2017
  3. By: Gil S. Epstein (Bar-Ilan University); Ira N. Gang (Rutgers University)
    Abstract: Can a society suffering contests between rich and poor achieve good governance in the face of endemic corruption? We examine a stylized poor state with weak institutions in which a “culture of evasion” damages state authority. Many evade tax payments, limiting the state’s economic development capability. In the face of extensive corruption, it is challenging for the state to establish and implement policies reflecting good governance; for example, a government that is accountable and transparent, efficient and effective, and follows the rule of law. The rich and poor possess different views on what is the appropriate level of enforcing proper payments of taxes due. The government needs to design an effective tax administration policy that minimizes corruption and is sensitive to the present and future needs of society. To do this it must understand what drives such widespread corruption.
    Keywords: corruption, tax administration, governance, rent-seeking
    JEL: O12 O15 O16
    Date: 2017–11–14
  4. By: Derek Kellenberg (Department of Economics, University of Montana); Arik Levinson (Department of Economics, Georgetown University)
    Keywords: Tariff evasion, international trade, auditing and accounting standards, organized crime, regional trade agreements (RTAs)
    JEL: F13 F14 H26
    Date: 2017–08–31
  5. By: Franck M. Adoho (World Bank, USA); Djeneba Doumbia (Paris School of Economics, France and World Bank, USA)
    Abstract: This paper uses 1-2-3 survey data on the Democratic Republic of Congo to analyze heterogeneity in the informal sector. It empirically identifies three types of entrepreneurs in the sector. The first group of entrepreneurs—top performers—is growth oriented and enjoys greater access to capital. The second group—constrained gazelles—includes entrepreneurs who share many characteristics, especially management skills, with the top performers, but operate with less capital. The third group—survivalists—comprises firms struggling to grow. Based on logit and fixed effect ordinary least squares models, the results show that poverty and income inequality are more common among constrained gazelles and survivalists. The paper also shows that income inequality is explained mainly by educational disparities and lack of credit access among entrepreneurs. Additionally, the outcomes of a Blinder-Oaxaca decomposition show that the performance of firms is a key factor in explaining differences in income. Examining the drivers of performance, the paper finds that human capital and managerial skills are important engines of performance.
    Keywords: Informal sector, income inequality, firm performance, Democratic Republic of Congo.
    JEL: D21
    Date: 2017–10
  6. By: Carlos A. Ibarra; Jaime Ros
    Abstract: This paper studies the decline of the labour share in Mexico during the period 1990– 2015. It calculates the wage share and alternative measures of the labour income share (which includes labour income of the self-employed) for the whole economy, the private business sector, and its major economic sectors. It carries out a shift–share analysis showing that the decline in the labour share is mostly explained by reductions within the economy’s major sectors (including within manufacturing, tradables, and non-tradables) rather than by a recomposition of value added towards those with low labour shares. It distinguishes within each major area of economic activity a modern wage-employment sector and an informal self-employment one. In contrast to agriculture—where the labour share fell due a shift of labour force towards the wage-employment sector—in other major areas of the economy the fall in the labour share is explained by reductions within the wage-employment sector. Econometric estimations indicate that parallel declines in the wage share and relative productivity of non-tradables and in the US manufacturing labour share all played a large role in the reduction of the manufacturing wage share in Mexico. More generally, the analysis suggests that the lagging productivity of the informal non-tradable sector of the economy—itself a reflection of the country’s low aggregate rate of economic growth—is a crucial factor in the fall of the labour share in the formal sectors. The paper concludes by discussing possible explanations for the paradox of the slow rate of economic growth in Mexico despite the rise in the profit share, and by pointing out remaining challenges for reconciling the different sources of data in the calculation of the labour share in Mexico.
    Date: 2017
  7. By: Kumar, Dr.B.Pradeep
    Abstract: Studies of vulnerability have gained wide currency among policy makers and governments in recent times. This paper is an endeavour to examine the problem of financial vulnerability among the tribes in the Wayanad district of Kerala. In Wayanad district, a tribe concentrated district in the State, the study has revealed that near 94.8 percent of tribes are having bank accounts. Within the tribal communities, Kuruma, a forward non-primitive tribe community has near 98 percent of households with bank accounts. The labour market intervention through the programmes of government has been catalyst in making tribes banking included. Tribes working under MGNREGS have been mandatorily forced to avail of bank accounts unless they would not be entitled to receive remuneration under the MGNREGS. The real financial vulnerability of people especially the low income and economically deprived communities like the tribes stems from their incessant dependence on the informal sources of finance. More than sixty percent of tribes depend on informal sources for credit requirements and among different tribe communities, Adiya and Paniya, two backward tribe communities, depend more on informal credit sources. Kuruma community, which is recognised as an advanced tribe community in the Wayanad district, appears to have been depending more on formal players for their credit needs. The present study calls for adopting strategies focusing on rural areas in order to reduce the financial vulnerability of socially and economically disadvantaged segments of people like the Tribes.
    Keywords: Financial Vulnerability, Financial Exclusion, Non-Primitive Tribes, Formal and Informal Financial Sources, Shocks, Small Borrowal Accounts, Access to Finance, financialization, Jan Dhan Account, JAM, Proximity Banking, Cooperatives and RRBs
    JEL: G00
    Date: 2017–07–17
  8. By: Simplice Asongu (Yaoundé/Cameroun); Paul Acha-Anyi (Pretoria, South Africa)
    Abstract: In this study we investigate the role of information and communication technology (ICT) in conflicts of financial intermediation for financial access. The empirical evidence is based on contemporary (or current values) and non-contemporary (or lagged by a year) quantile regressions in 53 African countries for the period 2004-2011. The main findings are: First, the net effect of ICT in formalization for financial activity in the banking system is consistently beneficial with positive thresholds. The fact that corresponding, unconditional and conditional effects are persistently positive is evidence of synergy or complementary effects. Second, the net effect of ICT in financial informalization for financial activity in the financial system is negative with a consistent negative threshold. Hence, the positive (negative) complementarity of ICT and financial formalization (informalization) is an increasing (decreasing) function of financial activity. Policy measures on how to leverage the synergy or complementarity between ICT and financial formalization in order to enhance financial access are discussed.
    Keywords: Allocation efficiency; financial sector development; ICT
    JEL: G20 G29 L96 O40 O55
    Date: 2017–01

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