nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2018‒10‒01
six papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Cross-border tax evasion after the common reporting standard: Game over? By Casi, Elisa; Spengel, Christoph; Stage, Barbara
  2. A call to action: From evolution to revolution on the common reporting standard By Casi, Elisa; Nenadic, Sara; Orlic, Mark Dinko; Spengel, Christoph
  3. Finance and Employment Formalization: Evidence from Mexico's ENIGH, 2000-2016 By Bazdresch Santiago
  4. Formal Employment and Organized Crime: Regression Discontinuity Evidence from Colombia By Gaurav Khanna; Carlos Medina; Anant Nyshadham; Jorge Tamayo
  5. Financial Development Beyond the Formal Financial Market By Lin Shao
  6. Perspectives for Integrating Housing Location Considerations and Transport Planning as a Means to Face Social Exclusion in Indian Cities By Geetam Tiwari

  1. By: Casi, Elisa; Spengel, Christoph; Stage, Barbara
    Abstract: Back in 2013, the Automatic Exchange of Information (AEOI) was endorsed as the prevailing universal solution to fight cross-border tax evasion. In this regard, the OECD launched a global standard for the AEOI, the Common Reporting Standard (CRS). Currently, around 100 jurisdictions have committed to implement it into respective national laws by 2018. In this study, we analyze the impact of the CRS on cross-border tax evasion using a difference-in-difference research design. By considering a period of four years (2014-2017), results suggest that the CRS induced a reduction of 14% in cross-border deposits parked in offshore locations for tax evasion purposes. Moreover, such wealth and related income has not been repatriated but rather a new location to avoid domestic tax obligations has emerged. More specifically, upon the CRS implementation at domestic level, the United States (U.S.), i.e. the only major economy in the world, which so far did not commit to the CRS, seems to emerge as a potentially attractive location for cross-border tax evasion.
    Keywords: Tax Evasion,Automatic Exchange of Information,Offshore Locations,Cross-Border Deposits
    JEL: F42 G21 H26 H31
    Date: 2018
  2. By: Casi, Elisa; Nenadic, Sara; Orlic, Mark Dinko; Spengel, Christoph
    Abstract: As a result of technical development and globalization, investing abroad has become much more accessible, and thus, an important channel for transferring wealth and income to offshore locations with the aim to avoid tax obligations at home. In this regard, the automatic exchange of information (AEOI) across countries is a strong weapon to stop cross-border tax evasion. This is why, in 2014, the Organization for Economic Cooperation and Development (OECD) launched its proposal for a global AEOI standard, the so-called Common Reporting Standard (CRS). This article provides a cross-country analysis of the national CRS laws for a sample of 41 countries with the aim to determine whether significant deviations from the original OECD model may hinder the effectiveness of the AEOI. Our key recommendation to the OECD and all participating jurisdictions is to achieve a higher level of standardization when designing CRS locally. Furthermore, international pressure on the U.S. to join the CRS is needed. A global AEOI system having the potential to put an end to cross-border tax evasion can be achieved only with the elimination of all attractive locations for illicit financial flows.
    Keywords: Automatic Exchange of Information,Tax Evasion,Offshore Locations,Common Reporting Standard
    JEL: F42 G21 H26 H31
    Date: 2018
  3. By: Bazdresch Santiago
    Abstract: We study the relationship between financial constraints and employment formalization by exploiting heterogeneity in the industry-level degree of financial dependence, in the spirit of Rajan and Zingales (1998). This dependence, and variation in aggregate credit, lets us measure industry-level financial slack, and estimate its effects on employment formality. We find formality among young workers increases, which is consistent with a model of informal firms that grow and formalize with financial resources, thus becoming more productive. However, we find that financial slack, apparently, decreases formality among older, experienced workers, which is consistent with a model of capital-constrained formal employees that turn into entrepreneurs when financial conditions improve. Descriptive statistics on formality, as well as regression estimates conditioning by age and schooling provide a detailed map of the differential effects of finance on formality.
    Keywords: Self-Employment;Entrepreneurship;Financial Constraints;Employment Formality;Financial Dependence
    JEL: G2 O11 O12 O16
    Date: 2018–08
  4. By: Gaurav Khanna (University of California); Carlos Medina (Banco de la República de Colombia); Anant Nyshadham (Boston College & NBER); Jorge Tamayo (Harvard University)
    Abstract: Canonical models of criminal behavior highlight the importance of economic incentives and employment opportunities in determining crime (Becker, 1968). Yet, there is little causal evidence leveraging individual-level variation in support of these claims. Over a decade, we link administrative micro-data on socio-economic measures with the universe of criminal arrests in Medellin. We test whether increasing the relative costs to formal-sector employment led to more crime. We exploit plausibly exogenous variation in employment around a cutoff in the socio-economic score, below which individuals receive health care if they are not formally employed. Using a regression discontinuity design, we show that the policy had the unintended consequence of inducing a fall in formal-sector employment and a corresponding spike in organized criminal activity. There are no effects on less economically motivated crimes like those of impulse or opportunity. Our results confirm the relationship between formal employment and crime, validating models of criminal activity as a rational economic choice **** RESUMEN: Los modelos canónicos del comportamiento criminal resaltan la importancia de los incentivos económicos y las oportunidades de empleo como determinantes del crimen (Becker, 1968). A pesar de esto, existe poca evidencia causal que soporte estos modelos a nivel de individuos. Nosotros pareamos, a lo largo de una década, información socioeconómica de individuos con el censo de todos los arrestos en Medellín. Nosotros probamos si incrementar el costo relativo del empleo formal conlleva a un incremento del crimen. Se explota una variación exógena en el empleo alrededor de un corte en el puntaje socioeconómico, por debajo del cual los individuos reciben aseguramiento en salud si no están formalmente empleados. Utilizando un diseño de regresión discontinua, mostramos que la política tuvo como consecuencia inducir una reducción en el empleo formal y un correspondiente incremento en la actividad del crimen organizado. No se encuentran efectos en crímenes con una motivación económica menor como aquellos de impulso u oportunidad. Nuestros resultados confirman la relación entre empleo formal y crimen, validando los modelos que explican la actividad criminal como una decisión racional.
    Keywords: Gangs, informality, Medellin, Bandas criminales, informalidad
    JEL: K14 K42
    Date: 2018–09
  5. By: Lin Shao
    Abstract: This paper studies the effects of financial development, taking into account both formal and informal financing. Using cross-country firm-level data, we document that informal financing is utilized more by rich countries than poor countries. To account for this empirical pattern, we build a model in which the supply of informal financing increases with financial development, while the demand for informal financing declines with it. The model generates a hump-shaped relationship between the incidence of informal financing and GDP per capita. Our analysis shows that, at the early stage of economic development, the output loss from financial frictions is reinforced by the low supply of informal financing. Informal financing contributes more to the aggregate output of the richest countries than to that of the poorer countries in our sample.
    Keywords: Financial markets, Firm dynamics, Productivity
    JEL: E44 O17 O47
    Date: 2018
  6. By: Geetam Tiwari
    Abstract: This paper highlights the urban development in India and implications for low income households living in informal settlements or slums. The paper is divided into four sections. Section 1 describes urban development pattern in India. Section 2 presents a summary of policies since 1950 which have been implemented to address the housing needs of low income households in cities. Section 3 presents impacts of various housing and resettlement policies in selected cities in India. Section 4 summarizes key insights from self-planned low income settlements in cities-the slums, and expert planned low income settlements as part of resettlement policies.
    Date: 2016–10–13

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