nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2018‒01‒15
nine papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Trade barriers and informality of trade: evidence from Benin's borders By Sami Bensassi; Joachim Jarreau; Cristina Mitaritonna
  2. Tax evasion by domestic and foreign-owned Portuguese firms: a bunching analysis By PAVIA Risa
  3. Tax Compliance in India: An Experimental Approach. By Tandon, Suranjali; Rao, R. Kavita
  4. Inequality, Good Governance and Endemic Corruption By Epstein, Gil S.; Gang, Ira N.
  5. Job Search, Unemployment Protection and Informal Work in Advanced Economies By Iain W. Long; Vito Polito
  6. Labor Market Search, Informality and Schooling Investments By Bobba, Matteo; Flabbi, Luca; Levy, Santiago
  7. Demonetisation, Social Networks and Social Protection: Insights from Rural Tamil Nadu By Isabelle Guérin; Youna Lanos; Sébastien Michiels; Christophe Jalil Nordman; Govindan Venkatasubramanian
  8. Pratiques managériales frauduleuses en Algérie : diversité, ampleur et perceptions des acteurs By Foued Cheriet
  9. Tributación en Colombia: reformas, evasión y equidad. Notas de estudio By Concha Llorente, Tomás; Ramírez Jaramillo, Juan Carlos; Acosta, Olga Lucía

  1. By: Sami Bensassi (University of Birmingham); Joachim Jarreau (Université Paris-Dauphine, PSL Research University, IRD, LEDa, DIAL); Cristina Mitaritonna (CEPII, Paris, France)
    Abstract: Informal cross-border trade is large, ubiquitous, and persistent in Africa. This paper studies the role of trade barriers in this state of aairs. We use a unique survey of informal transactions across Benin's land borders, which pro- vides the rst direct and comprehensive account of trade volumes and product coverage for this type of trade. We combine this data with ocial trade records and exploit variation across products and countries to measure the impact of tari and non-tari barriers to trade on informality. Increasing taris on a given product by 10% makes it 12% to 14% more likely that this product is imported informally rather than formally. Non-tari measures also increase informality. Our results also suggest that compliance costs, aside from taris and regulations, contribute to explain informality.
    Keywords: Informal trade, Regional Integration, Trade facilitation, Evasion, Africa.
    JEL: O17 F15 H26
    Date: 2017–10
  2. By: PAVIA Risa (Université catholique de Louvain, CORE, Belgium)
    Abstract: In this paper I examine whether firms report zero profits as a tax evasion strategy by testing the e ects on bunching at zero of an exogenous shock to the cost of evasion in Portugal. I develop a unique identification strategy by exploiting the targeting of
    Keywords: ITaxation, Firms, Bunching, Portugal
    JEL: H25 H26
    Date: 2017–07–28
  3. By: Tandon, Suranjali (National Institute of Public Finance and Policy); Rao, R. Kavita (National Institute of Public Finance and Policy)
    Abstract: The study presents an analysis of results of a laboratory experiment, conducted in 2015 to assess compliance behaviour in India. The experiment evaluates responses of 133 participants, to changes in key policy instruments like tax rate, penalty rate and audit probability. We find that changes in policy parameters generate varied responses across taxpayers. Audit probability is the only policy instrument that generates relatively consistent response. Further, the results show that individuals can be divided into those who respond to change in audit probability and those who respond to other policy variables, suggesting that no single policy would be adequate to induce suitable behavioural changes in all taxpayers.
    Keywords: tax compliance ; laboratory experiment ; audit probability ; tax rate ; penalty ; exemption threshold ; stigma
    JEL: H26 H3 C91
    Date: 2017–11
  4. By: Epstein, Gil S. (Bar-Ilan University); Gang, Ira N. (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: governance, tax administration, corruption, rent-seeking
    JEL: O12 O15 D82 G38
    Date: 2017–11
  5. By: Iain W. Long; Vito Polito
    Abstract: This paper investigates the incentives that may induce workers to supplement income from unemployment benefits by engaging in temporary informal work. Using a dynamic model of job-search with moral hazard that incorporates a stylised schedule of benefit payments, we describe how informal sector participation changes over the duration of unemployment, in turn affecting the incentive to search for formal employment. We find that increasing benefit generosity makes job seekers less reliant on informal work, enabling them to search more intensively. At the same time, when detection rates are low, informal work participation may decline as benefit exhaustion approaches, reinforcing this effect. From a policy perspective, the analysis identifies scope for reallocation of resources towards less generous programmes within unemployment protection, which would reduce the size of the informal sector and unemployment in the economy.
    Keywords: job-search, informal sector, unemployment insurance, moral hazard
    JEL: J64 J65 K42
    Date: 2017
  6. By: Bobba, Matteo; Flabbi, Luca; Levy, Santiago
    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
    Date: 2017–11
  7. By: Isabelle Guérin (IRD, CESSMA (Paris, France), IFP (Pondicherry, India)); Youna Lanos (IRD, UMR 225 DIAL, PSL, Université Paris Dauphine, LEDa); Sébastien Michiels (IRD, UMR 225 DIAL, PSL, Université Paris Dauphine, LEDa, IFP (Pondicherry, India)); Christophe Jalil Nordman (IRD, UMR 225 DIAL, PSL, Université Paris Dauphine, LEDa, IFP (Pondicherry, India)); Govindan Venkatasubramanian (IFP (Pondicherry, India))
    Abstract: The demonetisation that took place in India in November 2016 caused an unprecedented shock. Among its other objectives, the measure was championed as an efficient means to promote a less-cash economy, in order to formalise economic transactions and boost social protection. This paper draws on ground-breaking data from rural South India to voice serious reservations over those stated goals. In the short run, the importance of cash in the Indian economy resulted in this measure strongly affecting employment, daily financial practices, and social network use for over three months. People came to rely more strongly on their networks to sustain their economic and social activities. Demonetisation has not fought, but has largely strengthened the informal economy. It has also probably further marginalised those without supportive networks. In a context such as India, where state social protection is weak and governmental schemes are notoriously subject to patronage and clientelistic networks, dense networks of supportive relatives, friends and patrons remain key for safeguarding daily life and the future. It can only be counterproductive to eliminate such arrangements without offering alternative protection. With cashless policies flourishing in various parts of the world, we believe our findings have major implications, seriously questioning their merit, especially among the most marginalised segments of the population.
    Keywords: Demonetisation, Digitalisation, Social Regulation, Social Networks, Tamil Nadu, Caste and Gender Segmentation,
    JEL: J16 J24 J31 J71 C21 O12
    Date: 2017–10
  8. By: Foued Cheriet (UMR MOISA - Marchés, Organisations, Institutions et Stratégies d'Acteurs - CIRAD - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - Montpellier SupAgro - Centre international d'études supérieures en sciences agronomiques - INRA Montpellier - Institut national de la recherche agronomique [Montpellier] - CIHEAM - Centre International des Hautes Études Agronomiques Méditerranéennes - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier, Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier)
    Abstract: This paper aims to analyze the diversity and breadth of managerial fraud practices through the involved agents perceptions’. For this, we exploited the results of two surveys of 28 private enterprises and public officials in nine different regions in Algeria. Our results showed widespread practices of corruption and commercial or tax fraud, with an institutionalization of practices, and the existence of rational process of innovation in the fraud. These fraud practices appear to be an efficient response of businesses to adapt organization to a complex administrative context, in an unstable economic environment and an abundance of public financial funds.
    Abstract: L’objet de cet article est d’analyser la diversité et l’ampleur des pratiques de fraude managériale à travers les perceptions des acteurs impliqués. Pour cela, nous avons exploité les résultats de deux enquêtes menées auprès de 28 entrepreneurs privés et de 9 fonctionnaires publics dans différentes régions en Algérie. Nos résultats ont montré entre autres, une généralisation des pratiques de corruption et de fraude commerciale et fiscale, accompagnée d’une institutionnalisation des pratiques, et de l’existence de processus rationnel d’innovation dans la fraude. Ces pratiques de fraude apparaissent comme une réponse d’adaptation des entreprises à un contexte administratif complexe, à un environnement économique instable et à une abondance des disponibilités financières publiques.
    Keywords: fraud,enterprises firms businesses,entreprise,institution,fraude,corruption,Algérie
    Date: 2017–10–13
  9. By: Concha Llorente, Tomás; Ramírez Jaramillo, Juan Carlos; Acosta, Olga Lucía
    Abstract: En América Latina la tributación se encuentra volcada sobre impuestos indirectos, aunque el recaudo de los directos aumenta más aceleradamente. La carga tributaria en los impuestos directos recae principalmente sobre las empresas; Colombia es el país donde esta proporción es mayor. El aporte tributario al gasto público se mantiene relativamente estable. En Colombia la suma de evasión y elusión (brecha tributaria), comparada con algunos países de América Latina, es similar al promedio en el impuesto sobre la renta a empresas y en el IVA, pero es mayor en el impuesto sobre la renta personal. El efecto distributivo del impuesto sobre la renta es reducido en comparación con países de la región: en la tributación a las empresas existen importantes desigualdades sectoriales, verticales y horizontales; y se ha encontrado regresividad en el IVA. Para mejorar el recaudo, reducir la evasión, hacer al sistema más amigable y favorecer mayor equidad, la ruta estructural de las reformas indica que se debe fortalecer la tributación directa, aliviando la tributación en las empresas y gravando los ingresos por utilidades en las personas; así como avanzar en la simplificación del sistema, con la eliminación de muchos de los tratamientos diferenciales.
    Date: 2017–12–28

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