nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2019‒06‒10
six papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Sovereign default and imperfect tax enforcement By Francesco Pappada; Yanos Zylberberg
  2. Intelligent Government: How Research Can Help Increase Tax Compliance By Moore, Mick
  3. Reducing Informality Using Two-Sided Incentives: Theory and Experiment By Francisco B. Galarza; Fernando Requejo
  4. Informal Sector and Mobile Financial Services in Developing Countries: Does Financial Innovation Matter? By Luc Jacolin; Massil Keneck; Alphonse Noah
  5. The regularization of non-registered waged employment an analysis of post-inspection labor trajectories: executive summary By Trevignani, Virginia.; Carné, Martín.; Muruaga, Fernando.
  6. La regularización del empleo asalariado no registrado análisis de trayectorias posfiscalización laboral: resumen ejecutivo By Trevignani, Virginia.; Carné, Martín.; Muruaga, Fernando.

  1. By: Francesco Pappada; Yanos Zylberberg
    Abstract: We show that, in many countries, tax compliance is volatile and markedly responds to fiscal policy. To explore the consequence of this novel stylized fact, we build a model of sovereign debt with limited commitment and imperfect tax enforcement. Fiscal policy persistently affects the size of the informal economy, which impact future fiscal revenues and thus default risk. Thismechanism captures one key empirical regularity of economies with imperfect tax enforcement: the low sensitivity of debt price to fiscal consolidations. The interaction of imperfect tax enforcement and limited commitment strongly constrains the dynamics of optimal scal policy. During default crises, high tax distortions force the government towards extreme scal policies, notably including costly austerity spells.
    Keywords: China, productivity.
    Date: 2019–05–29
  2. By: Moore, Mick
    Abstract: How can governments and tax authorities best encourage taxpayers to be compliant, i.e. to be more honest in declaring information about their tax obligations and paying what is due? Unfortunately, one common response, rather misleadingly termed ‘education’, is to preach at taxpayers: to tell them that it is their duty to pay taxes, and threaten them with punishment if they fail. This kind of ‘education’ is not very effective, and may even reduce compliance. By contrast, there is a growing range of low-cost research techniques that can help tax authorities understand, for particular taxes and contexts in particular countries, how tax compliance can best be increased through the actions of the tax authorities themselves. It is increasingly possible for tax authorities to understand how their ‘clients’ behave in response to the tax collection procedures that are in place, and then to modify those procedures to increase compliance. These research techniques are increasingly used in low income countries, and by the staff of tax authorities rather than (solely) by external research experts. The paper summarises three research experiments successfully concluded in Africa in recent years by combinations of tax authority staff and external researchers. One of those experiments reveals the value of efforts genuinely to educate taxpayers – rather than to preach at them.
    Keywords: Economic Development, Finance, Governance,
    Date: 2019
  3. By: Francisco B. Galarza (Universidad del Pacífico); Fernando Requejo (Universidad del Pacífico)
    Abstract: We study the impact of two-sided incentives on the reduction of informality. We model those incentives using the notion of network externalities, which link the (formal or informal) merchant’s profits to the type of customers they serve (formal or informal). Our theoretical framework yields two straightforward testable implications: the merchant will find more profitable to become formal (or informal), as long as more of their customers are formal (or informal); and, formal and informal commercial sectors may coexist in equilibrium. We test these hypotheses using data from a field experiment, conducted with micro and small enterprises in Lima, Peru. Our subjects had to choose, in a repeated fashion, among three ‘platforms’, which proxy for being formal, informal, or performing a reservation activity. We then changed the relative size of the network of formal vis-á-vis informal customers, in order to calculate the consumer’s network externality. We find that the network externality is relatively large, a result that opens up the possibility to reduce commercial informality using two-sided incentives. Moreover, the platform choice between the formal and informal sectors is sensitive to risk preferences.
    Keywords: Network externality, informality, two-sided incentives, experiments
    JEL: C93 E26 O17
    Date: 2019–06
  4. By: Luc Jacolin; Massil Keneck; Alphonse Noah
    Abstract: This paper investigates the impact of mobile financial services - MFS (mobile money, and mobile credit and savings) on the informal sector. Using both parametric and non-parametric methods on panel data from 101 emerging and developing countries over the period 2000-15, we find that MFS negatively affect the size of the informal sector. According to estimates derived from propensity score matching, MFS adoption decreases the informal sector size in a range of 2.4 – 4.3 percentage points of GDP. These formalization effects may stem from different possible transmission channels: improvement in credit access, increase in the productivity/profitability of informal firms attenuating subsistence constraints typical of entrepreneurship in the informal sector, as well as possible induced growth of firms already in the formal sector. The robustness of these results is supported by the use of an alternative estimation approach (instrumental variables). These findings lay the groundwork for the scarce literature on the macroeconomic impact of mobile financial services, a major dimension of the growing drive towards economic digitalization transiting through industry-level MW.
    Keywords: Mobile financial services, Mobile money, Financial innovation, Digitalization, Informal sector, Developing countries.
    JEL: C26 E26 O33 G29 L96
    Date: 2019
  5. By: Trevignani, Virginia.; Carné, Martín.; Muruaga, Fernando.
    Date: 2019
  6. By: Trevignani, Virginia.; Carné, Martín.; Muruaga, Fernando.
    Date: 2019

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