nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2018‒01‒08
thirteen papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Measuring the fiscal and equity impact of tax evasion: evidence from Denmark and Estonia By Salvador Barrios; Bent Greve; M. Azhar Hussain; Alari Paulus; Fidel Picos; Sara Riscado
  2. The Deterrence Effect of Whistleblowing: An Event Study of Leaked Customer Information from Banks in Tax Havens By Niels Johannesen; Tim Stolper
  3. Dirty Money Coming Home: Capital Flows into and out of Tax Havens By Lukas Menkhoff; Jakob Miethe
  4. Responses of Firms to Tax, Administrative and Accounting Rules: Evidence from Armenia By Zareh Asatryan; Andreas Peichl
  5. Labor Market Search, Informality and Schooling Investments By Bobba, Matteo; Flabbi, Luca; Levy Algazi, Santiago
  6. Explanatory factors behind formalizing non-farm household businesses in Vietnam By Jean-Pierre Cling; Mireille Razafindrakoto; François Roubaud
  7. Informal versus Formal: A Panel Data Analysis of Earnings Gaps in Madagascar By Christophe Jalil Nordman; Faly Rakotomanana; François Roubaud
  8. Household Entrepreneurship and Social Networks: Panel Data Evidence from Vietnam By Huu Chi Nguyen; Christophe Jalil Nordman
  9. Transitions in a West African Labour Market: The Role of Social Networks By Christophe Jalil Nordman; Laure Pasquier-Doumer
  10. Decomposition of Gender Income Gap in Rural Informal Micro-enterprises: An Unconditional Quantile Approach in the Handloom Industry. By Hazarika, Bhabesh
  11. Global employment trends for youth 2017 path to a better working future By International Labour Office.
  12. An Inventory of Employment Protection Legislation in France: A preserved past primarily but an uncertain future By Hervé Charmettant
  13. Fortalecimiento de la inspección del trabajo en Santa Fe detección de los determinantes del trabajo no registrado y su regularización (2012-2015) By Carné, Martín.; Trevignani, Virginia.; Muruaga, Fernando.

  1. By: Salvador Barrios (European Commission - JRC); Bent Greve (Roskilde University); M. Azhar Hussain (Roskilde University); Alari Paulus (University of Essex); Fidel Picos (European Commission - JRC); Sara Riscado (European Commission - JRC)
    Abstract: In the European context where fiscal consolidation is required in many countries, tax non-compliance behaviour becomes a very relevant issue for governments and policy makers. In this paper, we aim at contributing to the assessment of tax non-compliance, by estimating individual measures of tax evasion, focusing on employment earnings for two countries, Denmark and Estonia. Additionally, we simulate two different scenarios – a "true world" where some individuals underreport their income to the tax authorities and a "perfect world" where everyone reports truthfully their incomes – in the European microsimulation model EUROMOD, allowing us to obtain the fiscal and distributional effects of taking into account evaded employment income. Furthermore, the Estonian country case allows us to illustrate the importance of linking survey and administrative data not only to accurately estimate tax evasion, but also to correct survey income amounts for measurement error. Preliminary findings indicate that taking into account non-reported incomes has non-negligible fiscal and distributional effects when these are taken into account to compute tax liabilities and benefits, even in a country where estimated non-reported income represent a low percentage of earnings, such as Denmark.
    Keywords: Tax evasion, microsimulation
    Date: 2017–12
  2. By: Niels Johannesen; Tim Stolper
    Abstract: We document that the first leak of customer information from a tax haven bank caused a sudden flight of deposits from tax havens and a sharp decrease in the market value of banks known to be assisting with tax evasion. The loss of market value was largest for the banks most strongly involved in tax evasion and zero for banks with no known ties to tax evasion. Subsequent leaks had qualitatively similar although smaller effects. Our findings suggest that whistleblowing in tax haven banks deters offshore tax evaders by increasing the perceived risk of committing and assisting with tax evasion.
    Keywords: whistleblowing, economic crime, tax evasion, tax havens
    JEL: G21 H26 K42
    Date: 2017
  3. By: Lukas Menkhoff; Jakob Miethe
    Abstract: We use newly released bilateral locational banking statistics of the Bank for International Settlements to show the full circle of international tax evasion via tax havens. Surprisingly, white-washed money from tax havens is also withdrawn from banks in non-havens if an information treaty is signed between both countries. There are time lags and other economically plausible structures in these reactions. Interestingly, the effect of additional information-uponrequest treaties seems to fade out over time. By contrast, new treaties based on automatic information exchange again show bite; this puzzling evidence is best explained by dirty money changing its packaging.
    Keywords: Tax evasion, international capital flows, international information exchange treaties, bank deposits
    JEL: H26
    Date: 2017
  4. By: Zareh Asatryan; Andreas Peichl
    Abstract: Using panel data on the full population of corporate tax returns from Armenia, we study behavioral responses of firms to three size-dependent regulations. We find: i) a strong response to an accounting notch where IFRS becomes mandatory; ii) a moderate response to an administrative notch below which the frequency of filing taxes declines; and iii) no response to the VAT registration threshold notch. Exploiting tax audits, we provide evidence suggesting that income under-reporting drives the bunching response of firms. Additional evidence suggests that firms respond to audits by compensating additional reported income by a 0.90 dollar increase in deductions.
    Keywords: small and medium enterprises, size-dependent regulation, value added tax, tax administration, tax accounting, tax evasion
    JEL: H25 H26 O12
    Date: 2017
  5. By: Bobba, Matteo (Toulouse School of Economics); Flabbi, Luca (University of North Carolina, Chapel Hill); Levy Algazi, Santiago (Inter-American Development Bank)
    Abstract: We develop a search and matching model where firms and workers are allowed to form matches (jobs) that can be formal or informal. Workers optimally choose the level of schooling acquired before entering the labor market and whether searching for a job as unemployed or as self-employed. Firms optimally decide the formality status of the job and bargain with workers over wages. The resulting equilibrium size of the informal sector is an endogenous function of labor market parameters and institutions. We focus on an increasingly important institution: a "dual" social protection system whereby contributory benefits in the formal sector coexist with non-contributory benefits in the informal sector. We estimate preferences for the system – together with all the other structural parameters of the labor market – using labor force survey data from Mexico and the time-staggered entry across municipalities of a non-contributory social program. Policy experiments show that informality may be reduced by either increasing or decreasing the payroll tax rate in the formal sector. They also show that a universal social security benefit system would decrease informality, incentivize schooling, and increase productivity at a relative fiscal cost that is similar to the one generated by the current system.
    Keywords: labor market frictions, search and matching, Nash bargaining, informality, returns to schooling
    JEL: J24 J3 J64 O17
    Date: 2017–11
  6. 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: This article sets out to investigate the reasons why some household businesses decide to register and become formal (while others do not) in order to shed light on the origins of informality. We use qualitative as well as quantitative data on household businesses (HB) derived from first-hand representative surveys implemented in Hanoi and Ho Chi Minh city. The study reveals that although most of the informal businesses operate ‘illegally’, this is more due to unclear registration legislation than the mark of a deliberate intention to evade the economic regulations.Among the different factors which influence the registration decisions, the reason for setting up the business appears to be a determining one: the more it is a real choice (businesses set up to be independent or to follow a family tradition) and the less a constraint (set up for lack of an job alternative), the more the HB is more inclined to be registered. Furthermore, the analysis highlights that incentives do prove decisive insofar as the probability of having a formal business is greater among HB heads who consider that registration provides at least partial protection from corruption. Besides, access to information, the market and large business orders also drive the informal entrepreneurs to register. These results stress the need for clarification of the legal framework as well as incentive policies in order to address the issue of informality.
    Abstract: Cet article se propose d'analyser les raisons pour lesquelles certaines unités de production (household businesses, HB) décident de s'enregistrer et de devenir formelles (et pourquoi d'autres ne le font pas) afin d'éclairer les origines de l'informalité. Nous mobilisons des données aussi bien quantitatives que qualitatives sur les HB, issues d'enquêtes représentatives et de première main conduite par nos soins à Hanoï et Ho Chi Minh ville. L'étude révèle que bien que la plupart des unités informelles opère "illégalement", ce trait procède plus d'une législation floue et méconnue que d'une volonté délibérée d'échapper aux régulations publiques. Parmi les différents facteurs qui jouent sur la décision de s'enregistrer, le motif qui a conduit à s'établir à son compte est déterminant : plus il s'agit d'un véritable choix (volonté d'échapper au salariat ou par tradition familiale) et moins il résulte d'une contrainte (manque d'alternative d'emploi), et plus le chef d'unité sera enclin à s'enregistrer. De plus, l'analyse met en évidence le rôle des incitations dans la probabilité de devenir formel. Ainsi, ceux qui considèrent que l'enregistrement protège (au moins partiellement) de la corruption sont plus nombreux à régulariser leur situation. Enfin, l'accès à l'information, aux marchés et aux commandes des grandes entreprises favorisent l'enregistrement. Ces résultats soulignent le besoin de clarification de la législation des entreprises ainsi que l'importance de politiques incitatives pour s'attaquer à la question de l'informalité.
    Keywords: Informal Sector,Vietnam,Registration,Corruption,Incentives
    Date: 2017–12–14
  7. By: Christophe Jalil Nordman (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine); Faly Rakotomanana (INSTAT - INSTAT Madagascar - INSTAT Madagascar); François Roubaud (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine)
    Abstract: In spite of its predominant economic weight in developing countries, little is known about informal sector income dynamics vis-à-vis the formal sector. Some works have been done in this field using household surveys, but they only consider some emerging Latin American countries (Argentina, Brazil, Colombia and Mexico; Gong et al., 2004; Perry et al., 2007; Bargain and Kwenda, 2011) and more recently South Africa, Ghana and Tanzania for Africa (Falco et al., 2010) and Vietnam for Asia (Nguyen et al., 2011). As a matter of consequence, there is still no way to generalize the (diverging) results to very poor part of the developing world. Taking advantage of the rich 1-2-3 Surveys dataset in Madagascar, in particular its four waves panel data (2000, 2001, 2003 and 2004), we assess the magnitude of various formal/informal sector earnings gaps while addressing heterogeneity issues at three different levels: the worker, the job (wage employment vs. selfemployment) and the earnings distribution. The questions asked are the following: Is there an informal sector job earnings penalty? Do some informal sector jobs provide pecuniary premiums? Which ones? Do possible gaps vary along the earnings distribution? Standard earnings equations are estimated at the mean and at various conditional quantiles of the earnings distribution. In particular, we estimate fixed effects quantile regressions to control for unobserved individual characteristics, focusing particularly on heterogeneity within both the formal and informal sector categories. Our results suggest that the informal sector earnings gap highly depends on the workers’ job status and on their relative position in the earnings distribution. Penalties may in some cases turn into premiums. By comparing our results with studies in other developing countries, we draw conclusions highlighting the Madagascar’s labour market specificity.
    Keywords: informal employment,earnings gap,transition matrix,quantile regressions,panel data,Madagascar
    Date: 2017–10–20
  8. By: Huu Chi Nguyen (Développement, Institutions & Mondialisation - IRD - Institut de Recherche pour le Développement - Université Paris-Dauphine, LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine); Christophe Jalil Nordman (Développement, Institutions & Mondialisation - IRD - Institut de Recherche pour le Développement - Université Paris-Dauphine, LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine)
    Abstract: Using a unique panel of household businesses for Vietnam, this paper sheds light on the links between households’ and entrepreneurs’ social networks and business performance. We address two related questions. One first question asks if we can find evidence of a differentiated effect of employment of members of the family versus hired workers on the business performance. A second question tackles the respective effects of various dimensions of social networks on the business technical efficiency. The assumption is that, beyond the channel of labour productivity, entrepreneurs that are confronted with an unfavourable social environment may produce less efficiently and realize a lower output than what could be possible with the same amount of resources. We find evidence of a productivity differential between family and hired labour and highlight results consistent with the presence of adverse social network effects faced by households running a business, in particular ethnic minorities. We stress the importance of professional networks for successful entrepreneurship.
    Abstract: En utilisant un panel de microentreprises familiales au Vietnam, cet article met en relation le réseau social des entrepreneurs et de leur ménage avec la performance de la microentreprise familiale. Nous abordons deux questions connexes. La première examine la possibilité d'effets différenciés de l'emploi des membres de la famille par rapport à des travailleurs recrutés sur le marché du travail sur la performance de la microentreprise. Une deuxième question aborde les effets respectifs des différentes dimensions des réseaux sociaux sur l'efficience technique de la microentreprise. L'hypothèse testée est que, au-delà du canal de la productivité du travail, les entrepreneurs qui sont confrontés à un environnement social défavorable pourraient produire moins efficacement et réaliser une valeur ajoutée plus faible que ce qui pourrait être possible avec la même quantité de ressources. Nous montrons qu'il existe en effet un différentiel de productivité entre le travail familial et le travail recruté sur le marché, et nos résultats attestent de la présence d'effets défavorables du réseau social pour certains ménages gérant une microentreprise. Nous soulignons aussi l'importance des réseaux professionnels pour la réussite de l'entreprenariat familial.
    Keywords: Social network capital,Sharing norms,Informality,Household business,Vietnam,Family labour,Kinship and ethnic ties,Travail familial,Liens ethniques et de parenté,Normes de partage,Capital du réseau social,Informalité,Microentreprises familiales,Panel
    Date: 2017–10–19
  9. By: Christophe Jalil Nordman (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine); Laure Pasquier-Doumer (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine)
    Abstract: This paper sheds light on the role of social networks in the dynamics of a West African labour market, i.e. in the transitions from unemployment to employment, from wage employment to self-employment, and from self-employment to wage employment. It investigates the effects of three dimensions of the social network on these transitions: its structure, the strength of ties and the resources embedded in the network. For this purpose, we use a first-hand survey conducted in Ouagadougou on a representative sample of 2000 households. Using event history data and very detailed information on social networks, we estimate proportional hazard models for discrete-time data. We find that social networks have a significant effect on the dynamics of workers in the labour market and that this effect differs depending on the type of transition and the considered dimension of the social network. The network size appears to not matter much in the labour market dynamics. Strong ties however play a stabilizing role by limiting large transitions. Their negative effect on transitions is reinforced when they are combined with high level of resources embedded in the network.
    Abstract: Dans cet article, nous analysons le rôle des réseaux sociaux dans la dynamique d'un marché du travail en Afrique de l'Ouest, en nous intéressant aux transitions du chômage vers l'emploi, de l'emploi salarié vers l’emploi indépendant et enfin de l’emploi indépendant vers l’emploi salarié. Les données d’une enquête originale que nous utilisons permettent d’appréhender les réseaux sociaux dans trois de leurs dimensions, à savoir sa structure, la force des liens et des ressources intégrées dans le réseau, et d’analyser les effets différenciés de chacune de ces dimensions sur ces transitions. Ces données, collectées à Ouagadougou en 2009, rassemblent les biographies professionnelles de 2000 ménages et sont représentatives à l’échelle de la ville. En nous appuyant sur des modèles de risques proportionnels, nous constatons que les réseaux sociaux ont un effet significatif sur la dynamique des travailleurs et que cet effet diffère selon le type de transition et la dimension considérée du réseau social. La taille du réseau semble joué un rôle mineur au regard des deux autres dimensions. Des liens forts jouent un rôle stabilisateur en limitant les grandes transitions. Leur effet négatif sur les transitions est renforcé quand ces liens forts sont combinés à un niveau élevé de ressources du réseau.
    Keywords: Social Network,Kinship,Labour Market Dynamics,Event History Data,Survival Analysis,Burkina Faso
    Date: 2017–10–20
  10. By: Hazarika, Bhabesh (National Institute of Public Finance and Policy)
    Abstract: There exists a noteworthy gender income gap in the micro-entrepreneurial activities, and typically the females earn lower than the males. While such gender income gap in wage employment is well-documented, the aspect needs attention in the context of the micro-entrepreneurship, particularly in the informal sector. It is important to analyze how differently the gender difference in endowments affect the income of the male and the female micro-entrepreneurs. The present study, based on primary data, analyses gender income gap and its compositions throughout the income distribution of the handloom micro-entrepreneurs in Assam. On an average, the female micro-entrepreneurs earn 51 percent lesser than their male counterpart. The unconditional quantile decomposition reveals that the gender income gap increases along the income distribution. The differences in the productive characteristics (endowment effects) explain much of the income gap at the median level and beyond than the heterogeneous returns to such characteristics (discriminatory effects). The endowment effects related to education, financial literacy, risk attitude, SHGs membership, and technology adoption are found in favor of the male micro-entrepreneurs. The results suggest that poor management of entrepreneurial activities of the female results in wider gender gap throughout the income distribution. The study urges for policy prescriptions towards dissemination of technological, financial, and managerial know-how to make the females more organized towards addressing the gender income gap.
    Keywords: Micro-entrepreneurs ; Handloom ; Gender ; Income Gap ; Unconditional Quantile Decomposition
    JEL: L26 L67 D13 D33 D63
    Date: 2017–12
  11. By: International Labour Office.
    Abstract: Incorporating the most recent employment trends for young women and men, Global Employment Trends for Youth sets out the youth labour market situation around the world. It shows where progress has or has not been made, updates world and regional youth labour market indicators, and gives detailed analyses of medium-term trends in youth population, labour force, employment, unemployment, working poverty and informality. The 2017 edition discusses the implications of technological change for youth labour market prospects – both quantity and quality – focusing on trends in sectoral employment and on the forms of work available to young people.
    Keywords: youth employment, decent work, promotion of employment, labour force participation, future of work
    Date: 2017
  12. By: Hervé Charmettant (CREG - Centre de recherche en économie de Grenoble - UPMF - Université Pierre Mendès France - Grenoble 2 - UGA - Université Grenoble Alpes)
    Abstract: This chapter presents an inventory of the employment protection legislation (EPL) in France. As shown by the OECD indicators, legal provisions have met with an overall stability since the 1980s, despite some reforms weighing in favor of flexibility. Simultaneously, France has been faced with a high rate of unemployment, especially long-term unemployment, as well as with a phenomenon of dualization of its job market. Precariousness remains limited to a part of workers whose situation tends, however, to worsen. This twofold observation leads us to the conclusion that current employment protection is relatively powerless, with a bleak future. Therefore, an adaptation to current circumstances is required, such adaptation being coupled with an improvement of the training system. Flexicurity is the direction that seems unavoidable in order to guide future reforms in France.
    Abstract: Ce chapitre présente un état des lieux de la législation de la protection de l'emploi (LPE) en France. Comme le montrent les indicateurs de l'OCDE, les dispositions juridiques ont connu une stabilité globale depuis les années 1980 malgré certaines réformes dans le sens de la flexibilité. Simultanément, la France a été confrontée à un fort taux de chômage, surtout de longue durée, et à un phénomène de dualisation de son marché du travail. La précarité reste limitée à une partie des travailleurs, dont la situation tend cependant à s'aggraver. Ce double constat nous amène à conclure sur la relative impuissance de la protection de l'emploi en l'état, avec de sombres perspectives d'avenir. C'est donc une adaptation de la LPE aux circonstances actuelles qui semble exigée, couplée à une amélioration du système de formation. La flexicurité est la direction incontournable pour guider les réformes à venir en France.
    Date: 2017–10–15
  13. By: Carné, Martín.; Trevignani, Virginia.; Muruaga, Fernando.
    Abstract: Es importante que el Estado sea eficaz en las tareas vinculadas con la inspección del trabajo, para garantizarel cumplimiento de la normativa laboral y promover el trabajo decente. Una importante herramientapara contribuir a mejorar la focalización de las tareas de inspección (para un uso más eficiente de losrecursos disponibles) es la identificación de los determinantes de la detección de empleo no registrado ysu regularización. En este trabajo se construye un modelo de regresión logística binaria para una muestrade empresas inspeccionadas, con el objetivo de conocer qué atributos de las unidades de producciónexplican en mayor medida el aumento de la probabilidad de detectar empleo no registrado y su posteriorregularización. Los puntajes obtenidos por estos modelos para la muestra son imputados al universo de lasempresas de la Provincia de Santa Fe en Argentina (scoring) durante el período 2012-2015, lo cual permitepredecir la probabilidad de ocurrencia de un evento de interés, en este estudio: la detección del empleono registrado y su posterior regularización en función de un conjunto de atributos de las empresas. Lanovedad metodológica de este estudio consiste en la utilización de registros administrativos del empleoregistrado (SIPA-AFIP) y de las inspecciones (SIMTySS), que son fusionados para esta indagación. Lasconclusiones se orientan a reforzar las inspecciones en las localidades del aglomerado Gran Rosario y de losdepartamentos del sur provincial, focalizando en las empresas de menor tamaño y de reciente constitución,que se dedican a actividades como la producción de alimentos, bebidas y tabaco, la construcción y losservicios de alojamiento y comidas, tareas que emplean en mayor medida mano de obra joven.
    Keywords: labour inspection, informal workers, Argentina
    Date: 2017

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