nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2019‒03‒11
seven papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Pecuniary and Non-Pecuniary Motivations for Tax Compliance: Evidence from Pakistan By Joel Slemrod; Obeid Ur Rehman; Mazhar Waseem
  2. Games and Network Structures on Corruption, Income Inequality, and Tax Control By Elena Gubar; Edgar Javier Sanchez Carrera; Suriya Kumacheva; Ekaterina Zhitkova; Galina Tomilina
  3. Shedding light on the shadows of informality : A meta-analysis of formalization interventions targeted at informal firms By Floridi, A.; Demena, B.A.; Wagner, N.
  4. The Size and Characteristics of Informal (“Gig”) Work in Canada By Olena Kostyshyna; Corinne Luu
  5. Determinants of choice of credit sources by Eswatini SMEs: A focus on the Agriculture Sector By Dlamini, T.; Mohammed, M.
  6. Worlding aspirations and resilient futures: framings of risk and contemporary city-making in Metro Cebu, the Philippines By Ramalho, Jordana
  7. Informalidad empresarial en Colombia By Cristina Fernández Mejía

  1. By: Joel Slemrod; Obeid Ur Rehman; Mazhar Waseem
    Abstract: We examine two Pakistani programs to explore the role of deterrence as well as social and psychological factors in the tax compliance behavior of agents. In the first of these programs, the government began revealing income tax paid by every taxpayer in the country. The second program publicly recognizes and rewards the top 100 tax paying corporations, partnerships, self-employed individuals, and wage-earners. We find that both public disclosure and social recognition of top taxpayers caused a substantial increase in tax payments. We explore the drivers of this behavior, including the shift of social norms toward compliance.
    JEL: H2 H24 H26
    Date: 2019–02
  2. By: Elena Gubar (Faculty of Applied Mathematics and Control Processes, St. Petersburg State University); Edgar Javier Sanchez Carrera (Department of Economics, Society & Politics, Università di Urbino Carlo Bo); Suriya Kumacheva (Faculty of Applied Mathematics and Control Processes, St. Petersburg State University); Ekaterina Zhitkova (Faculty of Applied Mathematics and Control Processes, St. Petersburg State University); Galina Tomilina (Faculty of Applied Mathematics and Control Processes, St. Petersburg State University)
    Abstract: IWe study taxpayers’ decisions according to their personal income, individual preferences with respect to the audit and tax control information perceived in their social environment. We consider that citizens are classified by two social groups, the rich and the poor. When public authorities are corrupt, we show that the poor group is the most affected by corruption. However, when taxpayers are corrupt or tax evaders, we implement mechanisms to audit and control this corrupt behaviour. We show that this situation can be represented by several well-known theoretical games. Then, evolutionary dynamics of the game in networks considering that each taxpayer receives information from his neighbours about the probability of audit is analyzed. Our simulation analysis shows that the initial and final preferences of taxpayers depend on important parameters, i.e. taxes and fines, audit information and costs.
    Keywords: Behavioral economics; Corrupt behavior; Income distribution; Income taxation system; Network Games; Population games
    JEL: C72 C73 O11 O12 O55 K42
    Date: 2018
  3. By: Floridi, A.; Demena, B.A.; Wagner, N.
    Abstract: Governments and policy-makers promote formalization through various interventions ranging from simplifying registration procedures to increasing enforcement of the law. But despite various efforts, not much is known about the effects of interventions aiming at formalizing informal firms. This meta-analysis examines the empirical literature on the impact of such formalization interventions. We systematically assessed the literature on the impact of formalization policies resulting in 568 observations from 18 studies conducted by 33 researchers and published until June 2018. We analyzed the meta-impact of (i) cost, (ii) benefit and (iii) enforcement policy interventions and assessed whether the resulting outcomes are influenced by the type of data, econometric approach, and specification as well as publication bias. The findings suggest that policies increasing the benefits after formalization are associated with the highest formalization rates. Yet, the overall impact of the studied policy interventions remains weak when we control for publication quality and method heterogeneity. Overall, we only find modest evidence for increased formalization associated with the so far implemented interventions suggesting that it is high time to consider new approaches in addressing the informal economy.
    Keywords: meta-regression analysis, informal enterprises, formalization, developing countries
    Date: 2019–02–21
  4. By: Olena Kostyshyna; Corinne Luu
    Abstract: Underlying wage growth has fallen short of what would be consistent with an economy operating with little or no slack. While many factors could explain this weakness, the availability of additional labour resources from informal (“gig”) work—not fully captured in standard measures of employment and hours worked—may play a role. We investigate this possibility through the Bank of Canada’s Canadian Survey of Consumer Expectations (CSCE) by documenting the characteristics and size of such working arrangements. We find that just under one-third of Canadians participate in this type of work, and this participation is often consistent with labour market slack. Just over one-third of respondents who take part in informal work do so as a result of weak economic conditions, and over half would switch their hours worked for hours in formal employment with no increase in pay. Part-time workers, youth and people in provinces with historically high unemployment rates were most likely to participate in informal employment. A portion of these workers would not be considered part of the labour force by standard labour market measures due in part to the irregularity of their work schedules. Accounting for these workers could boost participation rates by 2–3 percentage points. Moreover, the magnitude of labour supply from such work that could become available to the formal sector is sizable. It amounts to roughly 700,000 full-time equivalent jobs or 3.5 per cent of the labour force on average over the third and fourth quarters of 2018. This additional margin of labour market supply may be contributing to reducing wage pressures.
    Keywords: Labour markets; Recent economic and financial developments
    JEL: E24 E26 J20 J30
    Date: 2019
  5. By: Dlamini, T.; Mohammed, M.
    Abstract: The purpose of this study is to identify the factors that influence choice of credit sources by SMEs in the agriculture sector. Understanding factors that determine farmers� choice of credit will help improve and prioritise financial services most frequently used by the SMEs, in order to improve local food production and contribute to the Gross Domestic Production (GDP). The study used FinScope 2016 Survey data entailing 3,024 Eswatini SMEs selected through the two stage stratified random sampling method. Out of these SMEs, 87 of them in the agriculture sector were able to access credit from the informal, semi-formal and formal service providers in 2016, hence this study focuses of them. The data was analysed using a multinomial logistic regression. The study finds that keeping financial records, capital size required to start a business, the size of business, age of the business owner, and interest rates are significant factors that influence choices of agriculture SME owners between informal, semi-formal, and formal credit providers. Entrepreneurs that do not keep records are more likely to use informal sources of credit. Therefore, there is a need to develop policies that should thrust interventions to informal sources of finance/credit such as stokvels and rotating and savings schemes (ROSCAs) and also a policy that will ensure that semi-formal financial institutions do not morph into pseudo formal institutions, that is, commercial banks.
    Keywords: Agriculture; access to finance; SMMEs; SMEs; credit choices; Eswatini JEL codes: Q140, Q180, R200; Agricultural Finance
    Date: 2018–09–25
  6. By: Ramalho, Jordana
    Abstract: In the Philippines, calls for creating ‘global’, ‘sustainable’ and ‘resilient’ cities are placing urban poor communities in increasingly precarious positions. These communities have long been the targets of urban development and ‘modernisation’ efforts; more recently the erasure of informal settlements from Philippine cities is being bolstered at the behest of climate change adaptation and disaster risk management (DRM) agendas. In Metro Cebu, flood management has been at the heart of DRM and broader urban development discussions, and is serving as justification for the demolition and displacement of informal settler communities in areas classed as ‘danger zones’. Using Kusno's (2010) interpretation of the ‘exemplary centre’ as a point of departure, this paper interrogates the relationship between DRM, worlding aspirations (Roy and Ong, 2011) and market-oriented urbanisation in Cebu, and considers the socio-spatial implications of these intersecting processes for urban poor communities. Through analysing the contradictions inherent in framings of certain bodies and spaces as being ‘of risk’ or ‘at risk’ over others, I argue that the epistemologies of modernity, disaster risk and resilience endorsed and propagated by the state are facilitating processes of displacement and dispossession that serve elite commercial interests under the auspices of disaster resilience and pro-poor development.
    Keywords: disaster risk reduction and management; Philippines; urban development; resilience; urban slums; worlding; ES/J500070/1
    JEL: Q15
    Date: 2019–02–26
  7. By: Cristina Fernández Mejía
    Abstract: Existen pocas fuentes para estimar la informalidad empresarial en Colombia, pero a partir de la Encuesta de Hogares es posible afirmar que constituye cerca del 60% de las firmas, el 37% de los trabajadores y el 33% del valor agregado, en las áreas urbanas. Esta gran prevalencia de la informalidad contrasta con los beneficios de la formalidad en términos de bienestar laboral, productividad y cumplimiento futuro de la normativa tributaria, sanitaria, ambiental y de calidad. La respuesta a esta paradoja puede encontrarse en los diferenciales de ganancias después de impuestos entre firmas formales e informales. En efecto, los beneficios económicos de la formalización exceden sus costos únicamente en las firmas de mayor productividad relativa. En estas firmas existe un círculo virtuoso entre formalidad y productividad que contrasta con el círculo vicioso al que se enfrentan las firmas de menor productividad relativa. Este análisis también permite adaptar una versión simplificada del modelo y la taxonomía de la informalidad de Ulyssea (2017) al caso colombiano e identificar algunas recomendaciones para su implementación, y en particular: 1) las políticas de reducción de costos de entrada a la formalidad focalizadas en firmas de muy baja productividad pueden tener poco éxito si se aplican sobre la informalidad de subsistencia y de manera aislada a otras políticas; 2) Las políticas de monitoreo y control deben estar focalizadas en firmas de mayor productividad relativa. Su aplicación sobre firmas de muy baja productividad, aunque reduciría la informalidad, podría ocasionar un problema de bienestar.
    Keywords: Informalidad, Informalidad de Firma, Mercado Laboral Informal, Taxonomía de la Informalidad, Recomendaciones de Política para la Informalidad, Costo de la Informalidad
    JEL: D24 E24 J21 O17
    Date: 2018–11–30

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