nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2018‒09‒10
ten papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Informality, Labor Regulation, and the Business Cycle By Gustavo Leyva; Carlos Urrutia
  2. New technologies and the transition to formality the trend towards e–formality By Chacaltana Janampa, Juan.; Leung, Vicky.; Lee, Miso.
  3. The Value of Health Insurance: A Household Job Search Approach By Conti, Gabriella; Ginja, Rita; Narita, Renata
  4. Credit Channel and Business Cycle: The Role of Tax Evasion By Bruno Chiarini; Maria Ferrara; Elisabetta Marzano
  5. Improving Tax Literacy and Tax Morale of Young Adults By Phillis Alexander; Merima Balavac; Suranjita Mukherjee; Andrew Lymer; David Massey
  6. Tax Morale: Framing and Fairness By Phillis Alexander; Merima Balavac; Suranjita Mukherjee; David Massey
  7. Why is Tax Education Important for Compliance? By Mascagni, Giulia; Santoro, Fabrizio
  8. Simplified registration and collection mechanisms for taxpayers that are not located in the jurisdiction of taxation: A review and assessment By Walter Hellerstein; Stéphane Buydens; Dimitra Koulouri
  9. Information Asymmetry, Financialisation and Financial Access By Asongu, Simplice; Odhiambo, Nicholas
  10. Incidencia de las inspecciones y las sanciones laborales sobre el empleo registrado evidencia empírica para Argentina a partir de los registros administrativos By Ronconi, Lucas.; Ohaco, Moira.

  1. By: Gustavo Leyva (Banco de Mexico); Carlos Urrutia (ITAM)
    Abstract: We analyze the joint impact of employment protection and informality on macroeconomic volatility and the propagation of shocks in emerging economies. For this, we propose a small open economy business cycle model with frictional labor markets, employment protection and an informal sector, modeled as self-employment. The model is calibrated to the Mexican economy, in particular to business cycle moments for employment and informality obtained from our own calculations with the ENOE survey. We show that interest shocks, which affect specifically job creation in the formal sector, are key to obtain a counter-cyclical informality rate. In our model, confronted with similar shocks, the economy without an informal sector features higher macroeconomic volatility. However, an economy with low levels of employment protection would experience larger volatility in employment but smaller TFP and output fluctuations.
    Date: 2018
  2. By: Chacaltana Janampa, Juan.; Leung, Vicky.; Lee, Miso.
    Abstract: This paper focusses on how technologies can enhance the impact of institutional public policies addressing informality. Today, an increasing number of governments are promoting the application of new technologies to simplify and facilitate the transition from the informal to the formal economy. These “e-formality policies”, as in some cases, are related to e-government initiatives. It analyses some emerging public policies or public-sector practices and tools where technologies have already been implemented directly or indirectly for the transition to formality. This raises the questions if these policy innovations will transform the way formalization policies will be implemented in the future.
    Keywords: 1, 2, 3
    Date: 2018
  3. By: Conti, Gabriella (University College London); Ginja, Rita (University of Bergen); Narita, Renata (University of Sao Paulo)
    Abstract: Do households value access to free health insurance when making labor supply decisions? We answer this question using the introduction of universal health insurance in Mexico, the Seguro Popular (SP), in 2002. The SP targeted individuals not covered by Social Security and broke the link between access to health care and job contract. We start by using the rollout of SP across municipalities in a differences-indifferences approach, and find an increase in informality of 4% among low-educated families with children. We then develop and estimate a household search model that incorporates the pre-reform valuation of formal sector amenities relative to the alternatives (informal sector and non-employment) and the value of SP. The estimated value of the health insurance coverage provided by SP is below the government's cost of the program, and the corresponding utility gain is, at most, 0.56 per each peso spent.
    Keywords: search, household behavior, health insurance, informality, unemployment
    JEL: J64 D10 I13
    Date: 2018–07
  4. By: Bruno Chiarini; Maria Ferrara; Elisabetta Marzano
    Abstract: This paper examines the role of tax evasion in explaining the business cycle in a DSGE model with a financial accelerator. For this purpose, we assume that financially constrained agents are tax evaders, taking advantage of an additional margin of flexibility in coping with adverse shocks. In this setting, we simulate a risk shock that propagates its effects in the credit channel via the financial accelerator mechanism. The results show that tax evasion is pro cyclical and strengthens the effects of the financial accelerator. Unlike the standard literature, in which tax evasion cushions business cycle fluctuations, here we find that it amplifies macroeconomic fluctuations considerably.
    Keywords: tax evasion, financial accelerator, business cycle, risk shocks, DSGE modeling
    JEL: E32 E44 H26
    Date: 2018
  5. By: Phillis Alexander (Department of Accounting, Finance and Economics, Bournemouth University); Merima Balavac (Univerzitiet u Sarajevu); Suranjita Mukherjee (Department of Accounting, Finance and Economics, Bournemouth University); Andrew Lymer (University of Birmingham); David Massey (University of Central Lancashire)
    Abstract: This research considers socio-demographic influences and the impact enhancements to financial and tax literacy may have on young adults’ tax morale. It also considers the subjects’ perceptions of tax compliance and tax administration. The results show that gender, tax tuition, and employment experience influence tax morale. Most of the 377 students surveyed thought the UK tax system is fair, but complex with personal tax rates that are too high. The majority also believe that a significant number of taxpayers cheat by paying less than they legally owe. The research shows the positive impact of focused tax tuition on university students in raising financial and tax literacy as well as an appreciation for public finance. While the researchers were unable to conclude enhanced literacy resulted in enhanced tax morale in this study, the results nevertheless demonstrated marginal improvements in this regard, thus warranting further research into causation. The researchers make several recommendations for further initiatives and enhancements to existing programmes in taxpayer education focused on young people before they leave school and enter the job market.
    Keywords: Income Tax; Tax Morale; Tax Law; Taxability; Tax Compliance
    JEL: K34
    Date: 2018–08
  6. By: Phillis Alexander (Department of Accounting, Finance and Economics, Bournemouth University); Merima Balavac (Univerzitiet u Sarajevu); Suranjita Mukherjee (Department of Accounting, Finance and Economics, Bournemouth University); David Massey (University of Central Lancashire)
    Abstract: This paper examines to the relationship between the perception of tax fairness and tax morale conditional on the level of financial and tax literacy (FTL). The findings are based on the survey responses of 627 US or UK citizens in either public or private employment. Using factor analysis, the researchers found that there is a systematic variation of the effect of perceived tax fairness conditional on the FTL. Further, the way in which questions are framed is found to be important. For positively framed tax morale questions, the moderating effect of tax fairness is significantly negative for low levels of FTL candidates and improves with literacy. However, in negatively framed tax morale questions, tax morale is improved as one views that the tax system is fair but the impact is significant for higher levels of literacy. This has further policy implications as the ‘framing’ of tax literature could be instrumental in improving the tax morale of taxpayers.
    Keywords: Income Tax; Tax Morale; Tax Law; Taxability; Tax Compliance
    JEL: K34
    Date: 2018–08
  7. By: Mascagni, Giulia; Santoro, Fabrizio
    Abstract: This ICTD Research in Brief is a two-page summary of ICTD African Tax Administration paper 1 by Giulia Mascagni and Fabrizio Santoro. This series is aimed at policy makers, tax administrators, fellow researchers and anyone else who is big on interest and short on time. Knowledge about tax can contribute to shaping attitudes towards compliance. Citizens with better tax education are able to navigate complex tax systems, and can avoid overpayment due to intricate reporting requirements. They may be more encouraged to comply voluntarily. Against this background, we review the state of tax education in Africa, investigating common pitfalls of initiatives on the continent, and drawing evidence-based recommendations on how to improve them.
    Keywords: Governance,
    Date: 2018
  8. By: Walter Hellerstein; Stéphane Buydens; Dimitra Koulouri
    Abstract: This paper reviews and evaluates the efficacy of simplified tax registration and collection mechanisms for securing compliance of taxpayers over which the jurisdiction with taxing rights has limited or no authority to effectively enforce a tax collection or other compliance obligation. The experience in addressing this problem has involved primarily consumption taxes, but the lessons that can be learned from it are applicable as well to other tax regimes that confront the same problem. The best available evidence at present indicates that simplified regimes can work well in practice, achieving a high level of compliance. The paper notes that the adoption of thresholds may be an appropriate solution to avoid imposing a disproportionate administrative burden on small businesses while a good communications strategy is essential to the success of a simplified regime.
    Keywords: collection, compliance costs, consumption tax, cross-border, enforcement, simplified registration and compliance, tax, thresholds, VAT, VAT/GST Guidelines
    Date: 2018–09–06
  9. By: Asongu, Simplice; Odhiambo, Nicholas
    Abstract: This study investigates whether information sharing channels that are meant to reduce information asymmetry have led to an increase in financial access. The study employs a Generalised Method of Moments technique using data from 53 African countries during the period from 2004-2011 to examine this linkage. Information sharing channels are theoretically designed to promote the formal financial sector and discourage the informal financial sector. The study uses two information sharing channels: private credit bureaus and public credit registries. The study found that both information sharing channels have a positive and significant impact on financial access. The study also found that public credit registries complement the formal financial sector to promote financial access. The policy implications are discussed.
    Keywords: Information asymmetry; Financialisation; Financial Access; Africa
    JEL: G20 G29 L96 O40 O55
    Date: 2018–01
  10. By: Ronconi, Lucas.; Ohaco, Moira.
    Abstract: La inspección del trabajo y las multas en caso de incumplimiento son dos componentes centrales de los esfuerzos que realiza el Estado para evitar que se viole la normativa laboral. Este documento analiza empíricamente el impacto de dos programas del Ministerio de Trabajo Nacional – el Plan Nacional de Regularización del Trabajo (PNRT) y el Registro Público de Empleadores con Sanciones Laborales (REPSAL)– sobre la registración de trabajadores utilizando una novedosa base de datos que combina información administrativa de diversas fuentes. Los resultados indican que el PNRT y en particular el REPSAL tienen un elevado éxito inmediato. A los 10 días de realizada la inspección, se regulariza 1 de cada 2 trabajadores inspeccionados no registrados, o 22 nuevos trabajadores registrados por cada 100 registrados relevados. Las empresas reaccionan rápido, al punto que menos del 15% de las que fueron descubiertas con trabajadores no registrados en el 2015 ingresaron efectivamente al REPSAL. Sin embargo, los resultados sugieren que el efecto no se transmite a los restantes casos de no registración en la firma inspeccionada, y se diluye prácticamente con la misma rapidez. Al año de la inspección, se observan solo 2 nuevos trabajadores registrados por cada 100 registrados, y a los dos y tres años el impacto es estadísticamente indistinguible de cero. Estos resultados son esperables al considerar el proceso de inspecciones y multas. En forma breve, el sistema brinda un “período de gracia” de 10 días en el cual el empleador que incumple con la registración de sus trabajadores – y es descubierto durante la inspección – puede corregir el problema simplemente dando la Clave de Alta Temprana (un trámite sin costo) sin sufrir ninguna multa. Adicionalmente, como no existe el concepto de reincidencia en esta etapa del proceso, el empleador tiene los incentivos económicos para evadir los aportes y las contribuciones a la seguridad social, dado que, si lo vuelven a inspeccionar y encontrar culpable, volverá a tener los 10 días de gracia para solucionar el problema y no enfrentar ninguna multa.
    Abstract: Labor inspection and fines in case of non-compliance are two central components of the State’s efforts to ensure that labor regulations are not violated. This paper empirically analyzes the impact of two programs of the national Ministry of Labor – Plan Nacional de Regularización del Trabajo (PNRT) y Registro Público de Empleadores con Sanciones Laborales (REPSAL) – on the registration of workers using a new database that combines administrative information from various sources. Results indicate that both PNRT, and in particular REPSAL, have high immediate success. Within 10 days of the inspection, 1 out of 2 inspected unregistered workers are regularized, or 22 new registrations workers for every 100 inspected registered workers. Firms react quickly, to the point that less than 15% of those which were discovered with non-registered workers in 2015 actually entered REPSAL. However, the results suggest that the effect is not transmitted to the remaining unregistered workers in the inspected firm, and the effect is quickly diluted thereafter. One year after the inspection only two new registered workers are observed for every 100 registered workers; and the medium run impact (i.e., two and three years after the inspection) is statistically indistinguishable from zero. These results are not unexpected after considering how the process of inspections and fines actually works. Briefly, the system provides a 10-day “grace period” during which the employer who fails to register workers – and is discovered during the inspection – can correct the problem by simply registering the worker (a process free of charge). No fine applies during this 10-day period. In addition, the system does not penalize recidivism. Therefore, the employer has an economic incentive to evade the payroll tax, since, if she is re-inspected and found guilty, she will have another 10 days to resolve the problem and not face any fines.
    Date: 2018

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