nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2018‒10‒29
four papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Money, Inflation, and Unemployment in the Presence of Informality By Ait Lahcen, Mohammed
  2. The Customer is King: Evidence on VAT Compliance in Tanzania By Fjeldstad, Odd-Helge; Kagoma, Cecilia; Mdee, Ephraim; Hoem Sjursen, Ingrid
  3. Do Most U.S. Farms Really Lose Money? Taxation and Farm Income Underreporting By Key, Nigel D.
  4. Closing Gender Gaps in India: Does Increasing Womens’ Access to Finance Help? By Purva Khera

  1. By: Ait Lahcen, Mohammed
    Abstract: This paper studies the impact of informality on the long-run relationship between inflation and unemployment in developing economies. I present a dynamic general equilibrium model with informality in both labor and goods markets and where money and credit coexist. An increase in inflation affects unemployment through two channels: the entry channel (size) and the hiring channel (composition). On one hand, higher inflation reduces the surplus of monetary trades thus lowering firms entry and increasing unemployment. On the other hand, it shifts firms hiring decision from high separation informal jobs to low separation formal jobs thus reducing unemployment. The net effect depends on the difference in separation rates and the availability of credit in formal transactions. The model is calibrated to match certain long-run statistics of the Brazilian economy. Numerical results indicate that inflation has a small negative effect on unemployment while producing a significant impact on labor allocation between formal and informal jobs. These results point to the importance of accounting for informality when considering the inflation-unemployment trade-off in the conduct of monetary policy.
    Keywords: informality,Phillips curve,money,labor,search and matching
    JEL: E26 E41 J64 H26 O17
    Date: 2018
  2. By: Fjeldstad, Odd-Helge; Kagoma, Cecilia; Mdee, Ephraim; Hoem Sjursen, Ingrid
    Abstract: Like governments in many other African countries, the Government of Tanzania has been striving to improve the effectiveness of its value added tax (VAT) regime by reducing tax evasion through a combination of measures, including improved tax legislation and more effective administrative processes. A key initiative was the introduction of Electronic Fiscal Devices (EFDs) in 2010. It was expected that the new technology would be beneficial to both the Tanzania Revenue Authority (TRA) and business people by improving VAT compliance and reducing administrative and compliance costs. However, VAT collection has not improved as expected. In this paper, we examine EFD compliance among businesses that have an EFD and identify factors that influence compliance. An innovation in this study is that the research design allowed us to directly observe EFD usage, an important aspect of VAT compliance. Our enumerators waited for customers departing from business premises, and then checked their receipts, interviewed them and interviewed the businesses. This design enabled us to observe each business’s actual compliance in issuing EFD receipts, thus circumventing the problem of dishonest reporting, which is common in self-reported survey data. We find that EFD compliance is strongly associated with the customer’s perception of detection and penalty risks, and with the business operator’s perception of other businesses’ compliance behaviour.
    Keywords: Governance,
    Date: 2018
  3. By: Key, Nigel D.
    Keywords: Ag Finance and Farm Management, Household and Labor Economics, Food and Agricultural Policy Analysis
    Date: 2018–06–20
  4. By: Purva Khera
    Abstract: Gender gaps in womens’ economic opportunities—labor market and entrepreneurship—have remained high in India. Lack of adequate collateral limits women entrepreneurs’ ability to access formal finance, leaving them to rely on informal sources, constraining their growth. A small-open economy DSGE model is built to investigate the long-run macroeconomic impacts from closing gender gaps in financial access. Results suggest that an increase in women entrepreneurs access to formal credit results in higher female entrepreneurship and employment, which boosts India’s output by 1.6 percent. However, regulations and gender-specific constraints in the labor market limit potential gains as females’ access to quality jobs in the formal sector remains restricted. The paper shows that the factors influencing the number of females are different from those influencing the share of females in formal economic activity. Combining gender-targeted financial inclusion policies with policies that lower constraints on formal sector employment could boost India’s output by 6.8 percent.
    Date: 2018–09–28

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