nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2018‒09‒24
three papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Pathways to Formalization: Going beyond the Formality Dichotomy By Diaz, Juan Jose; Chacaltana, Juan; Rigolini, Jamele; Ruiz, Claudia
  2. Corruption in the informal sector: evidence from West Africa By Emmanuelle Lavallée; François Roubaud
  3. Regulatory Burdens in Tax Administration and Firms’ Compliance Costs in Africa By Ali, Merima

  1. By: Diaz, Juan Jose (GRADE); Chacaltana, Juan (ILO International Labour Organization); Rigolini, Jamele (World Bank); Ruiz, Claudia (ILO International Labour Organization)
    Abstract: Too often, academics and policy makers interpret formality as a binary choice and formalization as an irreversible process. Yet, formalization has many facets and shades on the business and labor fronts, and firms may not be able or willing to formalize all at once. This paper explores the joint process of business and labor formalization, using a unique panel data set of Peruvian micro enterprises. The paper finds that business formality does not imply labor formality, and vice versa. Further, there is significant churning in and out of different dimensions of formality within a relatively short period. Using an instrumental variable approach, the paper infers that business formalization affects labor formalization but not the other way around, and that enforcement is a key driver of formalization. Overall, the analysis shows that formalization is a gradual and reversible process, with small entrepreneurs weighing their possibilities in each pathway to business (often) or labor (less often) formalization, but rarely both at the same time.
    Keywords: informality, business formalization, labor formalization, small enterprises
    JEL: O17 O12 D21 L26
    Date: 2018–08
  2. By: Emmanuelle Lavallée (DIAL, LEDa, IRD, Université Paris-Dauphine, Université PSL); François Roubaud (IRD, UMR DIAL, PSL, Université Paris-Dauphine)
    Abstract: (english) Using an unique dataset, this paper analyses the causes and impacts of bribery in the informal sector in West Africa. It investigates the determinants of the incidence of bribery and the magnitude of the bribes actually paid. Our results show that the mechanisms at play are no different than those found for the formal sector by other authors. With respect to the impacts of corruption on a firm’s performance, our findings show that experience of corruption increases business performance, but that this effect is driven by just one category of informal firm: constrained gazelles. (français) Cet article analyse à partir de données originales les causes et les conséquences de la corruption dans le secteur informel en Afrique de l’Ouest. Il étudie les déterminants et l’ampleur des pots-de-vin payés. Les résultats montrent que les mécanismes en jeu dans l’informel ne sont pas différents de ceux prévalant dans le secteur formel. En ce qui concerne l’impact de la corruption sur les performances des entreprises, cet article met en évidence que la corruption augmente les performances des entreprises, mais que ce résultat est dû à une seule catégorie d’entreprises informelles : les « constrained gazelles ».
    Keywords: Corruption, informal sector, firm performance, entrepreneurship, West Africa.
    JEL: D73 O12 D22
    Date: 2018–04
  3. By: Ali, Merima
    Abstract: There is a growing interest among policy makers to cut red tape in government regulations in order to help improve the performance of businesses and create more jobs. However, most businesses, especially in Africa, still face challenges in meeting various government regulations that contributes to higher compliance costs. Compliance costs are the extra costs incurred by businesses in the process meeting various government regulations. Although previous studies looked at the effects of compliance costs on firms performance, little is understood to what extent the different regulatory burdens contribute to overall compliance costs.
    Keywords: Governance,
    Date: 2018

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