nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2017‒12‒18
eleven papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Optimal Long-Run Inflation and the Informal Economy By Claudio Cesaroni
  2. Fiscal policy with an informal sector By Harris Dellas; Dimitris Malliaropulos; Dimitris Papageorgiou; Evangelia Vourvachaki
  3. Segmentation and informality in Vietnam: A survey of the literature By Jean-Pierre Cling; Mireille Razafindrakoto; François Roubaud
  4. Maternity protection and workers with family responsibilities in the formal and informal economy of Ghana practices, gaps and measures for improvement By Stumbitz, Bianca.; Kyei, Abigail.; Lewis, Suzan.; Lyon, Fergus.
  5. The Impact of the Action Plan For Promoting Employment and Combating Unemployment on Employment Informality in Algeria By Ali Souag; Ragui Assaad
  6. Taxation and self-employment By Zsófia L. Bárány
  7. Beneficial openness? Weighing the costs and benefits of financial transparency By Maya Forstater
  8. A Collateral Tax Sanction: When Does it Mimic a Welfare-Improving Tag? By Yulia (Paramonova) Kuchumova
  9. Mutual Learning for Reducing Tax Gaps in V4 Countries and Ukraine Peer Country Paper: Poland By Iakov Frizis; Krzysztof G³owacki; Katarzyna Mirecka
  10. Study and Reports on the VAT Gap in the EU-28 Member States: 2017 Final Report By Grzegorz Poniatowski; Mikhail Bonch-Osmolovskiy; Misha V. Belkindas
  11. Improving financial access in Africa: insights from information sharing and financial sector development By Asongu, Simplice

  1. By: Claudio Cesaroni (Economic Analysis and Research, Sace S.p.A.)
    Abstract: This paper studies the optimal long-run rate of inflation in a two-sector model of the Lithuanian economy with informal production and price rigidity in the regular sector. The government issues no debt and is committed to follow a balanced budget rule. The informal sector is unregulated and untaxed and its existence limits the government’s ability to collect revenues through fiscal policy. Such environment provides therefore the basis for quantifying the possible existence of a public finance motive for inflation. The main results can be summarized as follows: First, there is a strong heterogeneity in the optimal inflation rate which depends on the tax rate that is endogenously adjusted to keep the budget balanced. Inflation can be as high as 6.77% when the capital tax rate is endogenous, but when labor income taxes are adjusted optimal policy calls for a rate of deflation such that the nominal interest rate hits the zero lower bound. Second, the optimal inflation rate is a non-decreasing function of the size of the informal economy and, in most cases, there is a positive relationship between the two. Finally, substantial deviations from zero inflation are observed even in presence of a plausible degree of price rigidity.
    Keywords: Optimal Inflation, Informal Economy, Endogenous Tax Changes
    JEL: E26 E52 H26
    Date: 2017–09–20
  2. By: Harris Dellas (University of Bern); Dimitris Malliaropulos (Bank of Greece); Dimitris Papageorgiou (Bank of Greece); Evangelia Vourvachaki (Bank of Greece)
    Abstract: Macroeconomic models that omit the shadow economy systematically mis-forecast and mis-measure the effect of fiscal –in particular tax– policy on economic activity and tax revenue. We add an informal sector to the Bank of Greece DSGE model and use the actual package of fiscal consolidation implemented in Greece over the period 2010–2015 to evaluate the role of the black economy. In the data, official Greek GDP declined by about 26%, budget deficits proved larger and more persistent and tax rates increased by much more and tax revenue by much less than predicted. The model replicates the official output decline but implies a true output decline that is less than two thirds of that in recorded output. The discrepancy is even more pronounced for employment. The model also implies that the size of fiscal adjustment and the drop in economic activity could have been considerably milder had the informal sector been curtailed (it instead increased by about 50%). The underground economy seems to have been a key factor in Greece’s failure to achieve orderly debt consolidation while avoiding economic depression.
    Keywords: Shadow economy; fiscal consolidation, multipliers, tax revenue, true output
    JEL: E26 E32 E62 E65 H26 H68
    Date: 2017–10
  3. By: Jean-Pierre Cling (CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique); Mireille Razafindrakoto (LEDa - Université Paris Dauphine (Paris 9)); François Roubaud (LEDa - Université Paris Dauphine (Paris 9))
    Abstract: Labour market segmentation is usually defined as the division of the labour markets into separate submarkets or segments, distinguished by different characteristics and behavioural rules (incomes, contracts, etc.). The economic debate on the segmentation issue has been focusing in developed countries, and especially in Europe, on contractual segmentation and dualism. However, in developing countries such as Vietnam which is the focus of this study, wage work is marginal and the approach to labour market segmentation is necessarily slightly different. Indeed, most workers are engaged in the informal economy and many of them are self-employed in their own household business. Starting with an analysis of the main characteristics of the national labour market, this paper presents a survey of the literature on informality and labour market segmentation in Vietnam (section 2). Section 3 describes the institutional background related to firm registration and social protection in Vietnam, and analyses the reasons for informality in relationship with the institutional framework. Section 4 describes the reforms being put in place and employment strategies related to the informal economy. Policy recommendations are proposed in the last section.
    Abstract: La segmentation sur le marché du travail est usuellement définie comme la coexistence de deux segments ou secteurs qui se distinguent par leurs caractéristiques et les comportements qui y prévalent (niveau de revenus, contrats, etc.). Le débat économique sur la segmentation s’est focalisé dans les pays développés, et en particulier en Europe, sur le dualisme résultant des contrats. Cependant, dans les pays en développement comme le Vietnam, les emplois salariés étant marginaux, la segmentation sur le marché du travail doit nécessairement être appréhendée de manière différente. La majorité des emplois relève de l’économie informelle et une grande partie est constituée d’auto-emploi dans des entreprises individuelles. Partant d’une analyse des principales caractéristiques du marché du travail national, ce document présente ensuite une revue de la littérature sur l’informalité et la segmentation sur le marché du travail au Vietnam (section 2). La section 3 décrit le cadre institutionnel en matière d’enregistrement et de protection sociale au Vietnam, et analyse les raisons de l’informalité. La section 4 examine les réformes qui ont été mises en place et les stratégies en termes d’emploi touchant l’économie informelle. Enfin, des recommandations politiques sont proposées dans la dernière section.
    Keywords: segmentation,Labour market,Informality,Vietnam,Informel,marché du travail
    Date: 2017–12–01
  4. By: Stumbitz, Bianca.; Kyei, Abigail.; Lewis, Suzan.; Lyon, Fergus.
    Keywords: 1, 2, 3
    Date: 2017
  5. By: Ali Souag (University of Mascara, CREAD, University Paris Est Creteil, ERUDITE); Ragui Assaad
    Abstract: This paper examines whether the Action Plan for Promoting Employment and Combating Unemployment, a labor market intermediation program adopted by the Algerian government in 2008, reduced the informality of employment in Algeria. Using repeated cross-section data from the Household Survey on Employment for the period from 1997 to 2013, and a difference-in-difference methodology, we estimate whether the Action Plan has reduced the probability that workers are employed informally in enterprises of more than 5 workers — the type of enterprise that is most likely to be directly affected by the Action Plan. Our results show that the Action Plan has in fact contributed to reducing employment informality in such enterprises, but with heterogeneous effects. More precisely, it reduced informality for employees of establishments of 10 workers or more but had no significant effects on informality for those working in enterprises of 5 to 9 workers. Furthermore, when we restrict our estimates to new entrants only, we do not find statistically significant effects.
    Date: 2017–06–12
  6. By: Zsófia L. Bárány
    Abstract: In this paper I theoretically show that if the self-employed evade income taxes, then the choice of being self-employed is more sensitive to the tax rates on wages than to tax rates on income from self-employment. Using variation in the statutory tax rates across countries, industries, and occupations, I find evidence that supports the predictions of the model. This suggests that those who choose self-employment, partly do so to take advantage of the technology it offers in evading taxes. This extensive margin of adjustment – between employment and self-employment – should be taken into account when considering the effects of tax rates on labor income, on taxable income and on welfare.
    Date: 2017–11
  7. By: Maya Forstater
    Abstract: Public financial transparency is increasingly advocated as a solution to concerns over legal tax planning by multinational corporations, and illegal tax evasion, fraud and money laundering. Caution is warranted since the scale of revenues at stake are in fact smaller than is often perceived, while experience suggests that data transparency is not a simple route to accountability. In particular there are calls for mandatory publication of beneficial ownership (the ultimate owners of companies and trusts), and country-by-country reports by multinational corporations (detailing revenues, assets, employment, profits and taxes paid in each jurisdiction). Other proposals include publication of tax rulings and profit and loss accounts for all companies. The broad case is made that the problems are huge, and that public transparency is the only solution. For complex problems to gain political and public momentum, it is helpful to be able to point to simple, clear solutions. Public registers of beneficial ownership and country-by-country reporting have played this role for the issues of illicit financial flows and profit shifting. But, there is a danger both for governments and civil society that iconic transparency measures provide ‘form’ rather than the ‘function’ in seeking to solve these problems. Ultimately, the aim should be to iterate towards mechanisms that enable more responsive public institutions, trusted legal systems, more effective markets and a stronger social contract between governments and their people.
    Keywords: tax transparency tax evasion beneficial ownership fraud money laundering
    Date: 2017
  8. By: Yulia (Paramonova) Kuchumova (National Research University Higher School of Economics)
    Abstract: The suspension of a driver's license, the revocation of a passport or a professional license are used by the tax authorities as sanctions for failure to comply with tax obligations and are referred to as collateral tax sanctions. In this paper, I propose a new rationale for why it may be bene cial to use collateral tax sanctions for the purpose of tax enforcement. By affecting consumption and providing enforcement targeted to a group, collateral tax sanctions may allow the government to impose punishment correlated with an individual's earning potential. Such punishment also makes the effective tax rates correlated with an individuals' earning potential and therefore leads to a more effective redistribution of income. I show that the use of collateral tax sanctions could increase the CES social welfare function when the skill distribution of the targeted group rst-order stochastically dominates the skill distribution of the other group and the social welfare function is sufficiently concave.
    Keywords: collateral sanction, tax enforcement, ability, tag
    JEL: Z
    Date: 2017
  9. By: Iakov Frizis; Krzysztof G³owacki; Katarzyna Mirecka
    Abstract: The paper summarizes knowledge on tax gaps in Poland with respect to PIT, CIT, VAT, and excise. An introduction to the Polish tax system is given, trends in tax collectability and estimates of the tax gaps are discussed, and methods of combating tax evasion and avoidance are reviewed. The paper has been written as part of the project “Mutual Learning for Reducing Tax Gaps in V4 Countries and Ukraine” co-financed by the Visegrad Fund in the years 2016-2017.
    Keywords: tax gap, tax evasion, tax avoidance, tax administration, compliance costs, CIT, PIT, VAT, excise, Visegrad, V4, Poland
    JEL: H26 H60
    Date: 2017
  10. By: Grzegorz Poniatowski; Mikhail Bonch-Osmolovskiy; Misha V. Belkindas
    Abstract: This analysis serves as the Final Report for the DG TAXUD Project 2015/CC/131, “Study and Reports on the VAT Gap in the EU-28 Member States”, which is a follow up to the reports published in 2013, 2014, 2015, and 2016. We present new estimates of the VAT Gap and the Policy Gap for the year 2015, as well as updated estimates for the years 2011?2014. This report provides first estimates of the VAT Gap for Cyprus, using the newly revised national accounts data from the Cyprus Statistical Agency. The VAT Gap is the difference between the amount of VAT revenue actually collected and the theoretical amount that is expected to be collected, given the observed information on the country’s economy and the actual VAT legislation. The amount of VAT total theoretical liability, known as VTTL, is calculated using the so-called “top-down” approach: the national VAT rate structure is imposed on the national accounts expenditure and investment data at the most detailed level possible to derive expected liability
    Keywords: consumption taxation, VAT, tax fraud, tax evasion, tax avoidance, tax gap,tax non-compliance, policy gap
    JEL: H24 H26
    Date: 2017
  11. By: Asongu, Simplice
    Abstract: The study investigates interactions between information sharing offices, the coexistence of financial sub-systems and financial access. The empirical evidence is based on Quantile regressions in order to articulate countries with low, intermediate and high levels of financial access. The scope of the study is on 53 African countries for the period 2004-2011. The following main results are established. First, the positive association between “information sharing offices (ISOs)” and “formal financial sector development” consistently increases with improvements in initial levels of credit access. Second, the negative linkage between ISOs and “informal financial sector development” consistently decreases with increasing levels of credit access. In summary, we establish that the positive complementarity of ISOs and financial formalization is an increasing function of financial activity (or access to credit) whereas the negative complementarity
    Keywords: Information Asymmetry; Financialization; Financial Access
    JEL: G20 G29 L96 O40 O55
    Date: 2017–07

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