nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2018‒03‒19
nine papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Optimal Redistribution with a Shadow Economy By Pawel Doligalski; Luis E. Rojas
  2. Tax evasion in Former Yugoslavian countries By Marko Crnogorac; Santiago Lago-Peñas
  3. Political Alignment, Attitudes Toward Government and Tax Evasion By Julie Berry Cullen; Nicholas Turner; Ebonya L. Washington
  4. Public Tax-Return Disclosure By Jeffrey L. Hoopes; Leslie Robinson; Joel Slemrod
  5. Gender and the informal economy key challenges and policy response By Otobe, Naoko.
  6. Dependent self-employment trends, challenges and policy responses in the EU By Williams, Colin C.,; Lapeyre, Frédéric,
  7. Firms and social policy preferences under weak institutions : Evidence from Russia By Marques II, Israel
  8. The spatial sorting of informal dwellers in cities in developing countries: Theory and evidence By Harris Selod; Lara Tobin
  9. Trayectorias hacia la formalización y el trabajo decente de los jóvenes en Argentina By Bertranou, Fabio.; Jiménez, Mónica.; Jiménez, Maribel.

  1. By: Pawel Doligalski; Luis E. Rojas
    Abstract: We extend the theory of the optimal redistributive taxation to economies with an informal labor market. The optimal tax formula contains two new terms capturing reported income responses of informal workers on an intensive and an extensive margin. Both terms decrease the optimal tax rates. We quantitatively show that this reduction can be substantial, exceeding 30 percentage points, and we document a large welfare gain of up to 6.4% of consumption from following our tax formula rather than the standard formula. We also provide a novel decomposition of the welfare impact of the shadow economy into labor efficiency and redistribution components. In the quantitative model estimated with Colombian data the shadow economy benefits efficiency at the expense of redistribution. As a result, conditional on the optimal tax policy, the presence of the informal sector does not substantially affect social welfare unless social preferences for redistribution are strong.
    Keywords: informal sector, optimal taxation.
    JEL: H21 H26
    Date: 2018–03–13
  2. By: Marko Crnogorac; Santiago Lago-Peñas
    Abstract: This article estimates tax evasion in all Former Yugoslavian countries during the last two decades. The scarcely available fiscal and national accounts data only allow an estimate of tax evasion based on data on the shadow economy. Nevertheless, the contribution of this paper to the existing literature is unique since tax evasion is estimated for the first time for some of the countries. We also estimate evasion of some single taxes. Lastly, we derive implications for the control of tax evasion and observed tax collections.
    Keywords: Tax evasion, Yugoslavia.
    JEL: H26
    Date: 2018–03
  3. By: Julie Berry Cullen; Nicholas Turner; Ebonya L. Washington
    Abstract: We ask whether attitudes toward government play a causal role in the evasion of U.S. personal income taxes. We first use individual-level survey data to demonstrate a link between sharing the party of the president and trust in the administration generally and opinions on taxation and spending policy, more specifically. Next, we move to the county level, and measure tax behavior as elections, decided by the voting behavior in swing-states, push voters in partisan counties into and out of alignment with the party of the president. Using IRS data, we find that reported taxable income increases as a county moves into alignment, with the increases concentrated in income sources that are easily evaded, due to lack of third-party reporting. Corroborating the view that evasion falls, potentially suspect EITC claims and audit rates also fall. Our results provide real-world evidence that a positive outlook on government lowers tax evasion.
    JEL: D72 H24 H26 H3
    Date: 2018–02
  4. By: Jeffrey L. Hoopes; Leslie Robinson; Joel Slemrod
    Abstract: We investigate the consequences of public disclosure of information from company income tax returns filed in Australia. Supporters of more disclosure argue that increased transparency will improve tax compliance, while opponents argue that it will divulge sensitive information that is, in many cases, misunderstood. Our results show that in Australia large private companies experienced some consumer backlash and, perhaps partly in anticipation, some acted to avoid disclosure. We detect a small increase (decrease) in tax payments for private (public) firms subject to disclosure suggesting differential costs of disclosure across firms. Finally, we find that investors react negatively to anticipated and actual disclosure of tax information, most likely due to anticipated policy backlash rather than consumer backlash or the revelation of negative information about cash flows. These findings are important for both managers and policy makers, as the trend towards increased tax disclosure continues to rise globally.
    JEL: H25 H26 M4
    Date: 2018–02
  5. By: Otobe, Naoko.
    Abstract: This paper reviews concepts of gender and informal economy and the situation of informal employment of women and men, and highlights the key issues and documents on selected country experiences regarding vulnerable groups of workers, such as homeworkers, street vendors, waste pickers, as well as women entrepreneurs. It also presents the overall ILO approach to formalization of informal employment.
    Keywords: 1, 2, 3, 4
    Date: 2017
  6. By: Williams, Colin C.,; Lapeyre, Frédéric,
    Abstract: Across the EU28, there is not only a significant ‘jobs gap’ with only 70.1 per cent of the working age population in jobs, but also concerns over the quality of jobs. One particular concern is that employees are being falsely classified as self-employed by employers in order to circumvent collective agreements, labour laws (e.g., minimum wages, working time legislation), employment tax and other employer liabilities implied in the standard contract of employment, and that the emergent ‘gig’ or ‘platform’ economy is accelerating this trend. This report evaluates this emergent employment relationship, here termed ‘dependent’ self-employment, which covers those classified as self- employed who do not meet one or more of the following criteria: (1) they have more than one client; (2) they have the authority to hire staff, and/or (3) they have the authority to make important strategic decisions about how to run the business. Tackling dependent self-employment is not so much about making this work standard but more about making all work decent. Although the misclassification of dependent self employment needs to be urgently addressed, either by reclassifying it as dependent employment or recognising a new hybrid category and attaching rights and protection to such work, at the same time, decent work deficits across all employment relationships need to be tackled. This requires firstly, collective responses, including the strengthening collective bargaining, and secondly, adapting social protection to better reflect the demise of the standard employment relationship of permanent full time dependent employment, and a world in which the quantity of jobs mean that 30 per cent of the working age population will not be in employment.
    Keywords: 1, 2, 3, 4
    Date: 2017
  7. By: Marques II, Israel
    Abstract: When does business support the expansion of social policy in the developing world? Existing work on managers’ preferences has tended to concentrate on the developed world, where governments can credibly commit to policy, tax evasion is constrained, and mechanisms exist to hold the bureaucracy accountable for policy implementation. In this paper, I relax these assumptions, arguing that weak institutions create opportunities for some firms to shift costs onto others: making social policy more attractive. I argue that firms with political connections are uniquely positioned to benefit from subsidies and property rights protection, which decreases the cost of social policy, while firms with low visibility can evade taxes and free-ride off universalistic social policy. Such firms will support social policy even where institutions are poor. I test this argument using a survey of 666 firms in 10 Russian regions.
    JEL: L21 L33 O15 H53
    Date: 2018–02–23
  8. By: Harris Selod (The World Bank - The World Bank - The World Bank); Lara Tobin (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We propose a theory of urban land use with endogenous property rights that applies to cities in developing countries. Households compete for where to live in the city and choose the property rights they purchase from a land administration which collects fees in inequitable ways. The model generates predictions regarding the levels and spatial patterns of residential informality in the city. Simulations show that land policies that reduce the size of the informal sector may adversely impact households in the formal sector through induced land price increases. Empirical evidence from a sub-Saharan African city supports the model's assumptions and outcomes.
    Keywords: Land markets,Property rights,Tenure security,Multiple sales
    Date: 2018–01
  9. By: Bertranou, Fabio.; Jiménez, Mónica.; Jiménez, Maribel.
    Abstract: La construcción de trayectorias virtuosas hacia la formalización y el trabajo decente de los jóvenes constituye uno de los desafíos de política pública más relevantes para garantizar una inclusión laboral sostenible durante todo el ciclo de vida de trabajo. Estas trayectorias dependen de factores tan variados como el desempeño escolar, la composición familiar, el género y la conciliación que la mayoría de los jóvenes deben lograr entre las tareas de cuidado, la formación, el trabajo y otras esferas de desarrollo personal. Este documento realiza una revisión de los indicadores clave del empleo juvenil en Argentina,y destaca especialmente las barreras que enfrentan los adolescentes y jóvenes en su tránsito hacia la formalización laboral, el papel que juegan las instituciones laborales y las políticas de protección social,como así también los desafíos que surgen a partir de los requerimientos de nuevas habilidades digitales y socioemocionales, frente a la evolución de las tecnologías y las cambiantes formas de organización dela producción y el trabajo, en el contexto de los Objetivos de Desarrollo Sostenible de la Agenda 2030.
    Abstract: The construction of virtuous trajectories towards formalization and decent work for young people constitutes one of the most relevant public policy challenges to guarantee sustainable labour inclusion throughout the work life- cycle. These pathways depend on factors as varied as educational attainment,family composition, gender and work-family-education reconciliation that most youths must achieve. This document reviews the key indicators of youth employment in Argentina, and particularly highlights the barriers faced by adolescents and young people in their transition towards the formalization of employment,the role played by labour institutions and social protection policies, as well as the challenges that arise from the requirements of new digital and socio-emotional skills, before the evolution of technologies and the changing forms of organization of production and work, in the context of the Sustainable DevelopmentGoals of the 2030 Agenda.
    Date: 2017

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