nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2018‒11‒26
nine papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Does financial development reduce the size of the informal economy in Sub-Saharan African countries? By Njangang, Henri
  2. The Value of Health Insurance: A Household Job Search Approach By Conti, Gabriella; Ginja, Rita; Narita, Renata
  3. What happens when the income tax increases? By Cerqua, Augusto; ,
  4. Family farmer attitudes toward incorporating into the formal economy By Boza, S.; Mora, M.; Osorio, F.; Munoz, J.
  5. The impact of e-wallet on informal farm entrepreneurship development in rural Nigeria By Joseph I. Uduji; Elda N. Okolo-Obasi; Simplice A. Asongu
  6. Toward an understanding of collaborative tax evasion: A natural field experiment with businesses By Doerr, Annabelle; Necker, Sarah
  7. Shaming for Tax Enforcement: Evidence from a New Policy By Dwenger, Nadja; Treber, Lukas
  8. A Steeper slope: the Laffer Tax Curve in Developing and Emerging Economies By Zouhair Aït Benhamou
  9. Gender and the Formal and Informal Systems of Local Public Finance in Sierra Leone By van den Boogaard, Vanessa

  1. By: Njangang, Henri
    Abstract: This paper contributes to the understanding of the other neglected effects of financial development by investigating the relationship between financial development and the size of the informal economy using an unbalanced panel data of 41 Sub Saharan African countries over the period 1991-2015. Empirical evidence is based on Ordinary Least Squared, Fixed effects and system Generalized Method of moment. The results show that financial development measured by broad money and domestic credit to private sector have a negative and statistically significant effect on the informal economy. This clearly suggests that financial development reduces the size of the informal economy.
    Keywords: Financial development, the informal economy, panel data, SSA
    JEL: G20 O17 O55
    Date: 2018–11–04
  2. By: Conti, Gabriella (University College London, Department of Economics); Ginja, Rita (University of Bergen, Department of Economics); Narita, Renata (University of São Paulo, Department of Economics)
    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: D10 I13 J64
    Date: 2018–07–26
  3. By: Cerqua, Augusto; ,
    Abstract: This paper exploits a sudden income tax rate increase in a large Italian region to examine whether this induced taxpayers to change their tax-related behavior. By using a spatial regression discontinuity design and a detailed dataset at the municipality level, we find a sizable and persistent decrease in declared income only for the self-employed and entrepreneurs.
    Keywords: Income tax; tax evasion; spatial regression discontinuity design
    JEL: C21 H26 J21
    Date: 2018–11–05
  4. By: Boza, S.; Mora, M.; Osorio, F.; Munoz, J.
    Abstract: Informal economy is particularly present in small-scale farming, although little attention has been paid so far. This article aims to contribute to a further understanding of the attitudes of small scale, family farmers, toward incorporating into the formal economy. For this, a survey was conducted of family farmers located in the Metropolitan Region of Santiago, Chile. The questionnaire was divided into the following sections: i) personal characteristics of the farmer, ii) technical and production features, iii) level of formalization and iv) statements regarding attitudes toward formalization. The data collected was processed by descriptive and multivariate techniques such as factor and cluster analysis. The results showed that farmers perceive formalization as a complex process which entails unpleasant obligations, and that they do not consider it really necessary. There are some distinctions, however, that allow two clusters to be identified: Favorable (18.82%) and Reluctant (81.18%). The first group has a positive attitude both in terms of the formalization process and its overall impact, but it represents a small percentage of the farmers. We conclude that to increase family farming incorporation in formal economy accurate and understandable information, as well as the adaptation of the processes and obligations to farmers situation is necessary. Acknowledgement :
    Keywords: Farm Management
    Date: 2018–07
  5. By: Joseph I. Uduji (University of Nigeria, Nsukka, Nigeria); Elda N. Okolo-Obasi (University of Nigeria, Nsukka, Nigeria); Simplice A. Asongu (Yaoundé, Cameroon)
    Abstract: Transforming agriculture from a largely subsistence enterprise to a profitable commercial venture is both a prerequisite and a driving force for accelerated development and sustainable growth in sub-Saharan Africa. The objective of this investigation is to assess the impact of the Federal Government of Nigeria (FGN) e-wallet programme on informal farm entrepreneurship development in rural Nigeria. Informal sector farmers are those that are not legally registered at the national level though could be connected to a registered association. The research is motivated by the absence of literature focusing on the problem statement or objective of study. One thousand, one hundred and fifty-two rural farmers were sampled across the six geo-political zones of Nigeria. Results from the use of a bivariate probit model indicate that the mobile phone-based technology via the e-wallet programme is a critical factor that has enhanced farm entrepreneurship in rural Nigeria. However, results also show that the impact of mobile phones (as a channel to accessing and using modern agricultural inputs) is contingent on how mobile networks are able to link farmers who live in rural areas and work mainly in farming. The results suggest that increasing mobile phone services in rural Nigeria enhances farmers’ knowledge, information and adoption of improved farm inputs and by extension, spurs rural informal sector economic activities in sub-Saharan Africa. Implications for practice, policy and research are discussed.
    Keywords: Informal sector’s adoption, electronic wallet technologies, rural farmers’ entrepreneurship
    JEL: Q10 Q14 L96 O40 O55
    Date: 2018–01
  6. By: Doerr, Annabelle; Necker, Sarah
    Abstract: Sales from businesses to consumers provide fertile ground for collaborative tax evasion. However, little is known about the phenomenon. We conduct a natural field experiment with 2,900 businesses in which we take the role of consumers and vary if we request an invoice for the delivery of a service. We find that 56% of businesses approach consumers with the intention to evade. The fraction is zero in the regulated market and 72% in the unregulated market. It increases when consumers signal their willingness to collude. Consumers can save 25% of the legal price on average if they agree to evade.
    Keywords: collaborative tax evasion,evasion rent,field experiment
    JEL: H26 C93 E26 J22 O17
    Date: 2018
  7. By: Dwenger, Nadja; Treber, Lukas
    Abstract: Can public shaming increase tax compliance through social pressure? Many tax authorities make ample use of public shaming. However, empirical evidence from outside the laboratory on how a new shaming law affects overall compliance is lacking. We provide the first evidence from the field, exploiting comprehensive administrative tax data and the introduction of a novel naming-and-shaming policy in Slovenia in 2012. The policy aims to reduce outstanding tax debt among the self-employed and corporations. Our empirical strategy exploits the variation across taxpayers in ex ante exposure to the shaming policy. We find that taxpayers reduce their tax debt by 8.5% to avoid shaming, particularly in industries where reputational concerns are likely to be important. The publication of the first naming-and-shaming list further reduces tax debt among shamed taxpayers because of social learning. This effect, however, is marginal in terms of revenue and tapers off quickly.
    Keywords: compliance; enforcement; penalty; shaming; social image concerns; tax debt
    JEL: D1 H26 K34 K42 Z13
    Date: 2018–09
  8. By: Zouhair Aït Benhamou
    Abstract: In comparing the tax burden between developed and developing economies, we argue that the Laffer curve is sensitive to two factors, namely the size of underground economic activities and tax collection costs. The baseline model exhibits counter-intuitive results for developing and emerging economies. Insofar as we find that they are able to extract higher tax rates and revenues in comparison with developed countries. The differences are due to the values computed for structural parameters and steady-state variables. However, when the share of underground activities is taken into account, the Laffer curve is pushed downward, while tax collection costs shift the peak rate to the left.
    Keywords: Laffer curve, Taxes, Tax burden, Underground economy, tax collection cost, calibration, estimation, GMM, SMM
    JEL: H21 H26 H30 E32 E37
    Date: 2018
  9. By: van den Boogaard, Vanessa
    Abstract: This paper considers how men and women in eastern and northern Sierra Leone interact differently with formal and informal revenue collection. It argues that the literature on tax and gender equity needs to be expanded in low-income countries to pay greater attention to the ways that citizens pay for public services in practice. It shows that formal taxation affects a very small proportion of the population, and especially of the female population. The reality is that women primarily pay for services at the local level through informal revenue contributions, which has the potential to reinforce gender inequities on account of the implications for intra-household divisions of power and lack of associated opportunities for political representation.
    Keywords: Governance,
    Date: 2018

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