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

  1. Poverty alleviation strategies under informality: Evidence for Latin America By Martín Caruso Bloeck; Sebastian Galiani; Federico Weinschelbaum
  2. Tax Audits as Scarecrows: Evidence from a Large-Scale Field Experiment By Marcelo Bergolo; Rodrigo Ceni; Guillermo Cruces; Matias Giaccobasso; Ricardo Perez Truglia
  3. Behavioral Responses to Wealth Taxes: Evidence from Switzerland By Marius Brülhart; Jonathan Gruber; Matthias Krapf; Kurt Schmidheiny
  4. Meet People Where They Are: Building Formal Credit Using Informal Financial Traditions By Akana, Tom
  5. El mercado laboral rural en Colombia, 2010-2019 By Andrea Otero-Cortés

  1. By: Martín Caruso Bloeck; Sebastian Galiani; Federico Weinschelbaum
    Abstract: Strategies based on growth and inequality reduction require a long-run horizon, and this paper therefore argues that those strategies need to be complemented by poverty alleviation programs. With regards to such programs, informality in Latin America and the Caribbean is a primary obstacle to carry out means testing income-support programs, and countries in the region have therefore mostly relied on proxy means testing mechanisms. This paper studies the relative effectiveness of these and other mechanisms by way of a formal model in which workers choose between job opportunities in the formal and informal sectors. Although the means testing mechanism allows for a more pro-poor design of transfers, it distorts labor decisions made by workers. On the other hand, (exogenous) proxy means testing does not cause distortions, but its pro-poor quality is constrained by the power of observable characteristics to infer income levels. However, since taxation is necessary to fund programs, redistribution becomes less effective, especially for programs other than means testing. The paper concludes by discussing the implications of these results for the design of more efficient targeting programs.
    Keywords: Poverty, inequality, means testing, proxy means testing, Latin America and the Caribbean
    JEL: J38 I38
    Date: 2019–10–31
  2. By: Marcelo Bergolo (IECON-UDELAR); Rodrigo Ceni (IECON-UDELAR); Guillermo Cruces (Centro de Estudios Distributivos, Laborales y Sociales (CEDLAS), IIE-FCE, Universidad Nacional de La Plata and University of Nottingham); Matias Giaccobasso (University of California, Los Angeles); Ricardo Perez Truglia (University of California, Los Angeles)
    Abstract: The canonical model of Allingham and Sandmo (1972) predicts that firms evade taxes by optimally trading off between the costs and benefits of evasion. However, there is no direct evidence that firms react to audits in this way. We conducted a large-scale field experiment in collaboration with Uruguay’s tax authority to address this question. We sent letters to 20,440 small- and medium-sized firms that collectively paid more than 200 million dollars in taxes per year. Our letters provided exogenous yet nondeceptive signals about key inputs for their evasion decisions, such as audit probabilities and penalty rates. We measured the effect of these signals on their subsequent perceptions about the auditing process, based on survey data, as well as on the actual taxes paid, based on administrative data. We find that providing information about audits had a significant effect on tax compliance but in a manner that was inconsistent with Allingham and Sandmo (1972). Our findings are consistent with an alternative model, risk-as-feelings, in which messages about audits generate fear and induce probability neglect. According to this model, audits may deter tax evasion in the same way that scarecrows frighten off birds.
    JEL: C93 H26 K34 K42 Z13
    Date: 2019–11
  3. By: Marius Brülhart; Jonathan Gruber; Matthias Krapf; Kurt Schmidheiny
    Abstract: We study how reported wealth responds to changes in wealth tax rates. Exploiting rich intra-national variation in Switzerland, the country with the highest revenue share of annual wealth taxation in the OECD, we find that a 1 percentage point drop in the wealth tax rate raises reported wealth by at least 43% after 6 years. Administrative tax records of two cantons with quasi-randomly assigned differential tax reforms suggest that 24% of the effect arise from taxpayer mobility and 20% from house price capitalization. Savings responses appear unable to explain more than a small fraction of the remainder, suggesting sizable evasion responses in this setting with no third-party reporting of financial wealth.
    Keywords: wealth taxation, behavioral responses, taxpayer mobility, evasion, Switzerland
    JEL: H24 H31 H73
    Date: 2019
  4. By: Akana, Tom (Federal Reserve Bank of Philadelphia)
    Abstract: The Consumer Finance Institute hosted a workshop in February 2019 featuring José Quiñonez, chief executive officer, and Elena Fairley, programs director, of Mission Asset Fund (MAF) to discuss MAF’s approach to helping its clients improve access to mainstream financial markets. MAF’s signature program, Lending Circles, adapts a traditional community-based financial tool known as a rotating savings and credit association (ROSCA) to help establish or expand credit reports for participants who may not be able to do so through traditional means. Lending Circles have served more than 10,000 clients since 2007 and have expanded well beyond MAF’s core constituency in the Mission District of San Francisco. Quiñonez and Fairley discussed MAF’s approach to working with the communities it serves and shared the key successes and challenges that MAF has encountered. This paper provides an overview of the information shared in the workshop and additional research connecting Lending Circles to previous work on ROSCAs.
    Keywords: rotating savings and credit association (ROSCA); financial inclusion; credit invisibles; underserved; unbanked
    JEL: D14 D71 D91
    Date: 2019–08–15
  5. By: Andrea Otero-Cortés (Banco de la República de Colombia)
    Abstract: El mercado laboral rural Colombia difiere en forma importante del urbano no solo en la composición del empleo, sino también en los problemas que enfrenta. En este trabajo se identificaron tres hechos estilizados del mercado laboral rural que merecen atención de forma prioritaria: (i) la participación laboral femenina es muy baja comparada con la de los hombres de las zonas rurales y la de las mujeres ubicadas en las cabeceras, y la tasa de desempleo femenina es más alta en las zonas rurales que en las cabeceras; (ii) las tasas de informalidad laboral rural son significativamente más altas que las urbanas y la cobertura pensional rural es precaria (inferior al 15% para todo el periodo analizado); y (iii) el trabajo infantil aún es una práctica común que, aunque ha disminuido en el tiempo, todavía una proporción significativa de niños y adolescentes trabajan de forma ilegal y, además, no asisten al colegio por estar trabajando. **** ABSTRACT: The Colombian rural labor market differs significantly from the urban labor market not only in the job composition, which is substantially different, but also in the problems it faces. In this paper, I identify three stylized facts of the rural labor market that deserve priority attention: i) female labor participation is very low compared to men’s participation in rural markets and with respect to women located in the urban areas and, in additional to that, women in the rural areas face a higher unemployment rate than men and urban women; ii) rural labor informality rates are significantly higher than urban ones and rural pension coverage is precarious (less than 15% for the entire period analyzed); and iii) child labor is still a common practice and although it has declined over time, still a significant proportion of children and adolescents work illegally and, as a consequence, do not attend school.
    Keywords: Mercado laboral rural, informalidad, desempleo, trabajo infantile, Rural labor market, Informality, Unemployment, Child labor
    JEL: J21 J23 J43 J46
    Date: 2019–11

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