nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2020‒05‒04
five papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Labor Earnings Dynamics in a Developing Economy with a Large Informal Sector By Cezar Santos; Felipe S. Iachan; Diego B. P. Gomes
  2. Neither Punishments nor Rewards: Fostering Tax Compliance through the Rawlsian Veil of Ignorance in a Laboratory Experiment By Klaudijo Klaser; Luigi Mittone
  3. Lending to the Unbanked: Relational Contracting with Loan Sharks By Kevin Lang; Kaiwen Leong; Huailu Li; Haibo Xu
  4. Aid Distribution During the COVID-19 Crisis By Alvin Ang; Ser Percival Peña-Reyes
  5. Le triomphe de l’injustice. Une lecture libre du livre de Saez et Zucman By Jacques Fontanel

  1. By: Cezar Santos; Felipe S. Iachan; Diego B. P. Gomes
    Abstract: We study labor earnings dynamics in a developing economy with a large informal sector. We use nationally representative Brazilian panel data that cover both formal and informal workers. We document large disparities in earnings fluctuations faced by these segments of the labor market, as well as the high frequency of transitions between them. Informality is associated with more volatile earnings, while workers in the formal sector are subject to significant downside risk. Transitions between formal and informal employment bring large asymmetric earnings shocks and have a frequency that depends on age and the initial earnings level.
    JEL: E24 E26 J24 J31 O17
    Date: 2020
  2. By: Klaudijo Klaser; Luigi Mittone
    Abstract: It is well known that different deterministic mechanisms (like formal audits and material punishments) can stem free riding behaviour in social dilemmas. The behaviouralist literature identified then several other environmental and psychological variables which can influence agents’ attitude to cooperate. By means of a repeated tax compliance game run in an experimental laboratory, our study measures the effects of a Rawlsian veil of ignorance on cooperation over time. In particular we found that in our experimental design the (laboratory) veil of ignorance has an effect both on the ex-ante distribution of votes concerning the adoption of a specific tax regime and on the ex-post tax compliance level between treatments, but not on compliance across rounds, which shows to be decreasing.
    Keywords: Experimental Economics, Inequality, John Rawls, Tax Compliance, Veil of Ignorance
    JEL: D63 C91 H26
    Date: 2020
  3. By: Kevin Lang (Boston University); Kaiwen Leong (Nanyang Technological University); Huailu Li (Shanghai Institute of International Finance and Economics); Haibo Xu (Tongji University)
    Abstract: We study roughly 11,000 loans from unlicensed moneylenders to over 1,000 borrowers in Singapore and provide basic information about this understudied market. Borrowers frequently expect to repay late. While lenders do rely on additional punishments to enforce loans, the primary cost of not repaying on time is compounding of a very high interest rate. We develop a very simple model of the relational contract between loan sharks and borrowers and use it to predict the effect of a crackdown on illegal moneylending. Consistent with our model, the crackdown raised the interest rate and lowered the size of loans.
    Keywords: Illegal Lending, Enforcement, Relational Contract
    JEL: K42 L14
    Date: 2020–03
  4. By: Alvin Ang (Department of Economics, Ateneo de Manila University); Ser Percival Peña-Reyes (Department of Economics, Ateneo de Manila University)
    Abstract: This paper highlights a large informal economy, a low propensity to save and invest, and widespread financial exclusion as factors that expose Filipinos to financial vulnerability. These factors could, in turn, make the distribution of government aid all the more challenging in the midst of the COVID-19 crisis. The sheer number of displaced informal economy workers, combined with economy-wide low savings and investment rates, would call for a massive amount of financial aid. Because of widespread financial exclusion, cash handouts are probably the quickest way to deliver the aid, which would expose local government units (LGUs) to considerable risks of wrong targeting, late delivery, and incomplete accounting. To ease the burden on LGUs, at least on the accounting aspect, it might be beneficial to consider enlisting the services of other channels, such as microfinance institutions, pawnshops, payment centers, and domestic money transfer service providers, to assist in the distribution of financial aid. Consumer awareness of these facilities appears to be high among the masses. Also, by involving the private sector, the government can take advantage of the efficiency of existing systems. The administrative costs to deliver the funds can be reduced, and the funds can also reach the beneficiaries faster.
    Keywords: COVID-19 pandemic, financial vulnerability, social amelioration
    JEL: E20 H12 O20
    Date: 2020–04
  5. By: Jacques Fontanel (CESICE - Centre d'études sur la sécurité internationale et les coopérations européennes - UPMF - Université Pierre Mendès France - Grenoble 2 - IEPG - Sciences Po Grenoble - Institut d'études politiques de Grenoble - UGA - Université Grenoble Alpes)
    Abstract: Saez and Zucman's book on the triumph of injustice is of great interest. First, because it presents complex and sometimes even secret statistical analyses that they have managed to collect and organize in a rigorous way for the United States. Secondly, it highlights the increase in inequality due to tax evasion and optimization. Finally, they show the unjustified nature of these differences in income and wealth, which they consider to be a serious threat to democracy. Proposals, mainly tax and international law proposals are put forward that are relatively simple and redress the greatest injustices. Heavily indebted states suffer from the willingness of large multinational firms to evade taxes, with the risk of a dominant oligarchy establishing a plutocracy. It must be added that the system of economic crises leads to the rise of a fundamental violence that can call into question all the collective values that form the basis of a nation and an economic system.
    Abstract: Le livre de Saez et Zucman sur le triomphe de l'injustice présente un grand intérêt. D'abord, car il présente des analyses statistiques complexes et parfois même secrètes qu'ils ont réussi à recueillir et à organiser de manière rigoureuse pour les Etats-Unis. Ensuite, il met en évidence l'accroissement des inégalités, du fait de l'évasion et de l'optimisation fiscale. Enfin, ils témoignent du caractère injustifié de ces différences de revenus et de patrimoines qu'ils considèrent constituer une menace grave contre la démocratie. Des propositions, principalement fiscales et de droit international, sont proposées, relativement simples et réparatrices des plus grandes injustices. Les Etats fortement endettés souffrent de cette volonté des grandes firmes multinationales à échapper à l'impôt, avec le risque d'une oligarchie dominante instituant une ploutocratie. Il faut ajouter que le système de crises économiques conduit à l'essor d'une violence de fond qui peut remettre en cause toutes les valeurs collectives qui fondent une Nation et un système économique.
    Keywords: Injustice,taxation,inequalities,tax havens,multinational firms,democracy,oligarchy,collective goods,fiscalité,inégalités,paradis fiscaux,firmes multinationals,démocratie,oligarchie,biens collectifs
    Date: 2020–03–02

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