nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2019‒01‒28
six papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Minimum Wages for Domestic Workers: Impact Evaluation of the Indian Experience By Gudibande, Rohan Ravindra; Jacob, Arun
  2. Working in chains: African informal workers and global value chains By Meagher, Kate
  3. Institutions and Customs Duty Evasion By Sébastien Jean; Cristina Mitaritonna; Antoine Vatan
  4. Fuzzy Profit Shifting: A Model for Optimal Tax-induced Transfer Pricing with Fuzzy Arm's Length Parameter By Rathke, Alex A.T.
  5. The Dynamics of Finance-Growth-Inequality Nexus: Theory and Evidence for India By Pranab Kumar Das; Bhaswati Ganguli; Sugata Marjit; Sugata Sen Roy
  6. “Land Ownership and Informal Credit in Rural Vietnam" By Matteo Migheli

  1. By: Gudibande, Rohan Ravindra; Jacob, Arun
    Abstract: The paper explores the labor market effect of minimum wage legislations in the informal sector for a developing country. The paper conducts an impact evaluation of the minimum wage legislation for domestic workers introduced in four states in India over the period of 2004-2012. Combining matching procedures with difference-in-difference, the paper estimates both the short-run and the long-run impact of the legislation on real wages and employment opportunities. Results show a positive impact of the legislation on real wages in the short-run, with no significant impact in the long-run. Further, the legislation did not seem to have had any impact on the extensive margin in terms of employment opportunities or the probability of being employed as a domestic worker over the entire period. Available evidence, in line with theoretical predictions, point towards a weak enforcement of the legislation as the driving factor of observed results.
    Keywords: wages,minimum wages,domestic workers,unemployment,informal sector
    JEL: J16 J31 J33 J38
    Date: 2018
  2. By: Meagher, Kate
    JEL: N0 R14 J01
    Date: 2019–01–08
  3. By: Sébastien Jean; Cristina Mitaritonna; Antoine Vatan
    Abstract: Tariff receipts are important for many countries but their collection is often problematic. To analyze why and to what extent this occurs we first model customs duty evasion as an interaction between customs officers considered to be corruptible law enforcers, and importing firms. In this context, higher tariffs generally lead to greater customs duty evasion but their marginal impact is decreasing, and may turn negative above a given threshold if customs officers adapt their inspection effort endogenously. While transparency (the probability of effective control) always limits evasion, we show that ease of enforcement (e.g. ease of establishing the shipment`s true value) matters only if customs officers do not collude with importers. Our empirical analysis spans 55 importing countries over the period 2001-2010 and confirms our predictions. This lends support to the assumptions of endogenous inspection effort and widespread collusion. World Trade Organization membership is found also to limit the extent of duty evasion.
    Keywords: Tax Evasion;Customs Duty;Institutions;International Trade
    JEL: J13 H26 K42
    Date: 2018–12
  4. By: Rathke, Alex A.T.
    Abstract: This paper proposes a model of optimal tax-induced transfer pricing with a fuzzy arm's length parameter. Fuzzy numbers provide a suitable structure for modelling the ambiguity that is intrinsic to the arm's length parameter. For the usual conditions regarding the anti-shifting mechanisms, the optimal transfer price becomes a maximising a-cut of the fuzzy arm's length parameter. Nonetheless, we show that it is profitable for firms to choose any maximising transfer price if the probability of tax audit is sufficiently low, even if the chosen price is considered a completely non-arm's length price by tax authorities. In this case, we derive the necessary and sufficient conditions to prevent this extreme shifting strategy.
    Keywords: fuzzy profit shifting,transfer pricing,tax evasion,tax enforcement,tax penalty
    JEL: F23 H26 K34
    Date: 2019
  5. By: Pranab Kumar Das; Bhaswati Ganguli; Sugata Marjit; Sugata Sen Roy
    Abstract: The purpose of this research study has been to expand our understanding of the finance-growth ‘nexus’ to finance-growth-inequality ‘nexus’ in the presence of both the formal and the informal sources of borrowing. Using empirical evidence of IHDS Survey data for two rounds the study attempts to assess the co-evolution of finance-growth-inequality in an intertemporal framework. The most important finding of the paper pertains to the econometric result that the household asset grows at the same rate independent of the source of loans - banks or moneylenders though the level effect (intercept) is higher if the loan is obtained from banks or lower if the household lives below poverty line. The same also holds for the rate of growth of per capita income. There is virtually no significant difference for the households living below poverty line (BPL) on the rate of growth of capital asset or income whether source of borrowing is bank or money lender. This is then formalized in a theoretical model of intertemporal choice of entrepreneur-investor to show that if there are both formal and informal sources of borrowing with a constraint on the formal sector borrowing and no constraint on the latter, then growth rates of asset and income are determined by the informal sector interest rate. The result can be generalised for any number of sources of borrowing. This questions the conventional wisdom regarding the policy aimed at financial inclusion. Inequality of income increases independent of the source of borrowing, though the BPL households are worse off in general.
    Keywords: financial development, financial inclusion growth, inequality, bank, India, IHDS, logit model
    JEL: C35 E50 G21 O11
    Date: 2018
  6. By: Matteo Migheli (University of Turin and CeRP-Collegio Carlo Alberto)
    Abstract: Access to credit and its cost is a major challenge for farmers in developing countries. Several studies show that land serves as collateral for accessing formal credit, but they often do not find any significant effect of land size on access to informal credit. I study the effects of land ownership on both the demand and the cost of informal credit in the Mekong Delta. The results show that as land ownership increases, both the demand and the cost of informal loans decrease. Design and implementation of appropriate land redistributions seems a fundamental way to fight the informal credit market.
    Date: 2018–06

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