nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2020‒02‒24
nine papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Is Informality Good for Business ? The Impacts of IDP Inflows on Formal Firms By Rozo,Sandra; Winkler,Hernan Jorge
  2. Who demands labour (de)regulation in the developing world?: Insider–outsider theory revisited By Kanbur Ravi; Ronconi Lucas; López-Cariboni Santiago
  3. Labor Market Dynamics, Informality and Regulations in Latin America By Antonio David; Samuel Pienknagura; Jorge Roldos
  5. Minimum wage effects on informality across demographic groups in Colombia By Luis E. Arango; Luz A. Flórez; Laura D. Guerrero
  7. Self-employment and labour market dynamics of men and women in El Salvador and Nicaragua By Gindling T.; Alaniz Enrique; Espino Alma
  8. Innovations in Tax Compliance : Conceptual Framework By Prichard,Wilson; Custers,Anna Louise; Dom,Roel; Davenport,Stephen R.; Roscitt,Michael Anthony
  9. Trust in Government Institutions and Tax Morale By Antonios M. Koumpias; Gabriel Leonardo; Jorge Martinez-Vazquez

  1. By: Rozo,Sandra; Winkler,Hernan Jorge
    Abstract: This paper examines the effects of large inflows of internally displaced persons (IDP), who are primarily absorbed by the informal sector, on the behavior of formal manufacturing firms in Colombia. To identify causal effects, the analysis employs annual, firm-level panel data between 1995 and 2010 and exploits that when conflict intensifies, forcefully displaced individuals tend to migrate to municipalities where people from their origin locations settled earlier. The paper finds that large inflows of IDP induce sizable, negative effects on the intensive and extensive margins of production of formal firms. These effects are stronger for firms operating in sectors that face a stronger competition from the informal economy.
    Keywords: Labor Markets,Crime and Society,Social Cohesion,Educational Sciences,Plastics&Rubber Industry,Business Cycles and Stabilization Policies,Textiles, Apparel&Leather Industry,Pulp&Paper Industry,Food&Beverage Industry,Common Carriers Industry,Construction Industry,General Manufacturing
    Date: 2019–10–07
  2. By: Kanbur Ravi; Ronconi Lucas; López-Cariboni Santiago
    Abstract: Contrary to the predictions of the insider–outsider model, we show that the large majority of outsiders in developing countries support, rather than oppose, protective labour regulations.This evidence holds across countries $
    Keywords: Monopsonies,Formal and informal,Equity,Labour,Labour market segmentation
    Date: 2019
  3. By: Antonio David; Samuel Pienknagura; Jorge Roldos
    Abstract: Labor markets in Latin America and the Caribbean (LAC) are characterized by high levels of informality and relatively rigid regulation. This paper shows that these two features are related and together make the speed of adjustment of employment to shocks slower, especially when regulations are tightly enforced. Evidence suggests that strict labor market regulations also have an adverse effect on medium-term growth. While both regulations on prices (minimum wages) and quantities (employment protection) decrease the speed of adjustment to shocks, they appear to be binding in different phases of the cycle—the former affects mostly the (net) job creation margin and the latter the (net) job destruction margin. The results also highlight possible interactions between labor market regulations and the effectiveness of macro-stabilization tools—including exchange rate depreciation.
    Date: 2020–01–31
  4. By: Soumyatanu Mukherjee (Indian Institute of Technology (IIT), Kharagpur); Thasni T (Indian Institute of Management Kozhikode)
    Abstract: The present paper explores the impact of corruption on the real wage of informal sector workers in a general equilibrium model of production and trade. The proposed general equilibrium model is a two-sector two-factor framework that models segmented labor market. There is a handful of literature examining the real wages on labor in a segmented labor market framework. This paper has been the first attempt to investigate that gap, the real wages in asegmented labor market with the existence of corruption and a unionized sector. We have come up with the striking finding that a reduction in the degree of corruption may benefit workers in the informal sector if the formal sector is relatively capital intensive in a value sense.
    Keywords: Corruption, Informal wage, Unionization, International Trade, Production linkages, Comparative advantage, Institutional quality, Informal sector, Sectoral allocation
    Date: 2019–10
  5. By: Luis E. Arango (Banco de la República de Colombia); Luz A. Flórez (Banco de la República de Colombia); Laura D. Guerrero
    Abstract: We present evidence of the minimum wage effects on labour informality rates in Colombia. Our identification strategy consists of dividing the working population into sixteen groups depending on their age, gender and educational level to observe how the variations in the minimum wage with respect to the 70th percentile of the distribution of salaries corresponding to the demographic group of each individual, affects the probability of having an informal occupation. The results suggest that the higher the value of the minimum wage ratio the higher will be the probability of being informal. An increase of one percentage point (pp) in the ratio of the minimum wage increases the probability of having an informal job by 0.21 pp. This effect may be greater in cities with higher informality rates and consequently with lower labour productivity of less educated workers. Our results also present evidence of non-linear effects, which suggests that workers whose labour productivity is less than the minimum wage are more likely to have informal jobs. **** RESUMEN: En este documento presentamos evidencia de las implicaciones del salario mínimo en la informalidad laboral. Nuestra estrategia de identificación consiste en dividir la población trabajadora en dieciséis grupos dependiendo de su edad, género y nivel educativo para observar cómo las variaciones del salario mínimo con respecto al percentil 70 de la distribución de salarios correspondiente al grupo demográfico de cada individuo, afecta su probabilidad de tener una ocupación informal. Los resultados sugieren que a mayor valor de la razón del salario mínimo más alta será la probabilidad de ser informal. Un incremento de un punto porcentual (pp) en la razón del salario mínimo incrementa la probabilidad de tener un empleo informal en 0.21 pp. Este efecto puede ser mayor en ciudades con mayor tasa de informalidad y en consecuencia con menor productividad laboral de aquellos trabajadores menos educados. Finalmente, nuestros resultados presentan evidencia de efectos no lineales, lo cual sugiere que aquellos trabajadores cuya productividad laboral es muy baja con respecto al salario mínimo, tienen una mayor probabilidad de tener trabajos informales. Classification-JEL: J21, J30, J46, O17
    Keywords: minimum wage, labour informality, heterogeneity, salario mínimo, informalidad laboral, heterogeneidad
    Date: 2020–02
  6. By: Maye Ehab Samy (University of Bamberg)
    Abstract: Youth in Egypt suffer from high rates of unemployment and inactivity. They are also heavily affected by the widespread use of informal employment. This paper addresses the effects of employment trans-itions on the health of youth in Egypt. It specifically focuses on the effect of temporary and informal employment compared to non-employment on the psychological health of youth. Using data from the Survey of Young People in Egypt for the years 2009 and 2014, I identify the causal effects of various employment transitions on mental health outcomes by estimating a matched difference-in-differences. Results show that the transition from nonemployment to employment improves the individual’s mental health in general. There are differences in the magnitude of the effect according to gender and the type of employment where those in informal and temporary employment have lower improvements compared to formal and permanent employment.
    Date: 2019–10–20
  7. By: Gindling T.; Alaniz Enrique; Espino Alma
    Abstract: We study the labour market dynamics of men and women in El Salvador and Nicaragua, focusing on the factors that help men and women move into an advantageous labour market state from an unfavourable state.We consider ‘advantageous’ states to be formal salaried employees and self-employed workers with a decent income or a successful and growing firm. Among our findings are that education and access to public services such as utilities promote transitions into advantageous states.
    Keywords: Self-employment,Poverty,Employment,Labour market dynamics,Latin America,Women
    Date: 2019
  8. By: Prichard,Wilson; Custers,Anna Louise; Dom,Roel; Davenport,Stephen R.; Roscitt,Michael Anthony
    Abstract: This paper presents a conceptual framework for developing more effective approaches to tax reform and compliance. The framework proposes that by combining complementary investments in enforcement, facilitation, and trust, reformers can not only strengthen enforced compliance but can also (a) encourage quasi-voluntary compliance, (b) generate sustainable political support for reform, and (c) create conditions that are more conducive to the construction of stronger fiscal contracts. A key challenge for governments lies in finding the right combination of these three measures -- enforcement, facilitation, and trust?to achieve revenue and broader development goals. The framework proposes greater reliance on locally grounded binding constraints analysis, coupled with careful attention to understanding politics and the drivers of trust in particular contexts, to guide analysis of how best different investments may be combined, prioritized, or sequenced. This framework can help policy makers to think about the right combination of strategies in specific contexts, and thus to allocate resources most effectively.
    Keywords: Tax Administration,Macro-Fiscal Policy,Tax Policy,Public Finance Decentralization and Poverty Reduction,Tax Law,Public Sector Economics,Taxation&Subsidies,Economic Adjustment and Lending,Social Analysis,Government Policies,Youth and Governance,Quality of Life&Leisure,National Governance
    Date: 2019–10–01
  9. By: Antonios M. Koumpias (Department of Social Sciences, University of Michigan-Dearborn, USA); Gabriel Leonardo (International Center for Public Policy, Georgia State University, USA); Jorge Martinez-Vazquez (International Center for Public Policy, Georgia State University, USA)
    Abstract: What actions do governments around the world take that may affect individuals’ trust in the government that positively influence tax morale (or a positive attitude toward tax compliance)? This paper researches which are the most salient government institutions that breed individual trust and the extent to which this trust ends up increasing citizens’ tax morale. We use cross-country survey information from the World Values Survey and the Freedom House spanning 92 countries and six survey waves during the period 1981-2014. Conditional on the level of political rights and civil liberties, we confirm prior evidence that trust in government organizations positively influences tax morale. More importantly, our findings show that it is trust in output government organizations that implement and deliver public goods and services to the citizenry that has a significantly larger impact on tax morale as compared to citizens’ trust in input-side organizations, such as the legislative and the executive branches of the government that design policy. We also exploit periods of democratic transitions, when large variations in trust may be present, to assess the role of trust in government organizations for tax morale using a treatment effects model. Our results reveal a robust, positive impact of negative democratic transitions on tax morale.
    Date: 2020–02

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