nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2019‒07‒29
three papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Sovereign Default and Imperfect Tax Enforcement By Francesco Pappadà; Yanos Zylberberg
  2. Environmental taxation, employment and public spending in developing countries By Kuralbayeva, Karlygash
  3. Unemployment, rural-urban migration and environmental regulation By Kuralbayeva, Karlygash

  1. By: Francesco Pappadà; 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. This mechanism 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 fiscal policy. During default crises, high tax distortions force the government towards extreme fiscal policies, notably including costly austerity spells.
    Keywords: sovereign default, imperfect tax enforcement, informal economy, fiscal policy
    JEL: E02 E32 E62 F41 H20
    Date: 2019
  2. By: Kuralbayeva, Karlygash
    Abstract: This paper investigates the consequences of environmental tax reforms for unemployment and welfare, in the case of developing countries with a large informal sector, rural-urban migration, and three different assumptions about public spending: (1) as part of a revenue-neutral policy, (2) fixed, and (3) varying endogenously. Under the indexation of unemployment benefits and informal-sector income that give rise to a double dividend, a lower level of public spending is associated with a smaller negative impact on the after-tax income of households and a higher increase in employment. These policies, however, still lead to a reduction in social welfare; even more so in the case of endogenous public spending, although it is associated with a higher increase in employment and a smaller reduction in private-sector incomes. The model implies that complementary policy, in terms of lower public spending, is unlikely to be socially acceptable, and does not support the case for a green tax reforms in developing countries.
    Keywords: informal sector; matching frictions; rural-urban migration; pollution taxes; double dividend; Centre for Climate Change Economics and Policy
    JEL: H20 H23 H30
    Date: 2018–02–16
  3. By: Kuralbayeva, Karlygash
    Abstract: This paper develops a general equilibrium model that incorporates specific features pertaining to developing countries: a large informal sector and rural-urban migration. A calibrated version of the model is used to study the effects of energy tax changes and a reduction in agricultural-sector energy subsidies on labor market outcomes. The results indicate that the incidence of energy taxes is partly shifted on to the rural sector through rural-urban migration. The results thus highlight the importance of modeling the features particular to developing countries and the economic general equilibrium effects when assessing the impact of environmental taxation in those countries.
    Keywords: informal sector; matching frictions; energy taxes; subsidies; rural-urban migration
    JEL: H20 H23 H30
    Date: 2018–05–01

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