nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2020‒05‒25
five papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. A Psychometric Investigation of the Personality Traits Underlying Individual Tax Morale By Nicolas Jacquemet; Stéphane Luchini; Antoine Malezieux; Jason Shogren
  2. Informal Labour in India By Vinay Reddy Venumuddala
  3. Working Paper 330 - Labor Market Flexibility and Jobs in Selected African Countries By Andinet Woldemichael; Margaret Joldowski; Abebe Shimeles
  4. Doing Business in Bolivia: a case study in the Andean regulatory framework By Jorge Ignacio Del Castillo
  5. Informal institutions, transaction risk, and firm productivity in Myanmar By Michael Danquah; Kunal Sen

  1. By: Nicolas Jacquemet (PSE - Paris School of Economics); Stéphane Luchini (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Antoine Malezieux; Jason Shogren (UW - University of Wyoming)
    Abstract: Why do people pay taxes? Rational choice theory has fallen short in answering this question. Another explanation, called "tax morale", has been promoted. Tax morale captures the behavioral idea that non-monetary preferences (like norm-submission, moral emotions and moral judgments) might be better determinants of tax compliance than monetary trade-offs. Herein we report on two lab experiments designed to assess whether norm-submission, moral emotions (e.g. affective empathy, cognitive empathy, propensity to feel guilt and shame) or moral judgments (e.g. ethics principles, integrity, and moralization of everyday life) can help explain compliance behavior. Although we find statistically significant correlations of tax compliance behavior with empathy and shame, the economic significance of these correlations are low–—more than 80% of the variability in compliance remains unexplained. These results suggest that tax authorities should focus on the institutional context, rather than individual preference characteristics, to handle tax evasion.
    Keywords: tax evasion,tax morale,morality,personality traits,psychometrics
    Date: 2019–06–26
  2. By: Vinay Reddy Venumuddala
    Abstract: India like many other developing countries is characterized by huge proportion of informal labour in its total workforce. The percentage of Informal Workforce is close to 92% of total as computed from NSSO 68th round on Employment and Unemployment, 2011-12. There are many traditional and geographical factors which might have been responsible for this staggering proportion of Informality in our country. As a part of this study, we focus mainly on finding out how Informality varies with Region, Sector, Gender, Social Group, and Working Age Groups. Further we look at how Total Inequality is contributed by Formal and Informal Labour, and how much do occupations/industries contribute to inequality within each of formal and informal labour groups separately. For the purposes of our study we use NSSO rounds 61 (2004-05) and 68 (2011-12) on employment and unemployment. The study intends to look at an overall picture of Informality, and based on the data highlight any inferences which are visible from the data.
    Date: 2020–05
  3. By: Andinet Woldemichael (Research Department, African Development Bank); Margaret Joldowski (Charles H. Dyson School of Applied Economics and Management, Cornell University); Abebe Shimeles (African Economic Research Consortium)
    Abstract: A flexible labor market is a precondition for fast and efficient structural transformation—the reallocation of labor from low-to high-productivity jobs. This paper uses individual-level data that spans more than 15 years to analyze labor market flexibility in four of Africa’s biggest or fastest-growing economies—Egypt, Ethiopia, Nigeria, and South Africa. The paper uses standard labor market mobility matrices and the Shorrocks mobility index. In addition, it estimates a dynamic random effects of participation rate and examines transitions between unemployment and employment, self-employment and wage-salary employment, and agricultural and nonagricultural sectors. While the two Sub-Saharan countries—Ethiopia and Nigeria—have relatively flexible labor markets—primarily due to the prevalence of the informal and agricultural sectors with low barriers to entry—Egypt and South Africa present relatively rigid mobility across labor market statuses. Roughly half the observed rigidity in entering the labor market in Egypt, Nigeria, and South Africa can be explained by worker characteristics such as age, gender, and education, whereas the other half is mainly due to institutional barriers and the lack of high-quality jobs. Although a normative assessment of the informal sector is difficult, its ability to absorb excess labor from an improperly functioning formal sector stands out. Thus, the informal sector is to be outgrown, not ignored. JEL Classification: J01; J21;J42; J46; J61
    Keywords: Labor market rigidity, structural transformation, unemployment, informal sector, labor market transition
    Date: 2019–12–31
  4. By: Jorge Ignacio Del Castillo (Estudiante)
    Abstract: This article researches on the evolution of the business regulatory framework of Bolivia from 2006 to 2017 and its relationship with the country’s Labor productivity, Total Factor Productivity, and its Informal Economy size. To do this, it analyzes the Doing Business annual reports and standardizes each year overall score to the most recent methodology developed by the World Bank Group. Furthermore, it complements its finding with qualitative data through semi-structured interviews to key actors in the Bolivian economy. Overall, this paper finds that few steps have been taken to improve Bolivia’s Business regulatory framework from the period of 2006-2017, result in a lower rank in the Doing Business report and keeping its score constant. The lack of initiative in working towards more efficient policies, complex nature and poor adaptability of new technological practices have stagnated the improvements of business regulations along their lifecycles. As a consequence, Bolivia Total Factor Productivity, Informal Economy size and Labor productivity have shown no improvement over the last 10 years.
    Keywords: World Bank, doing business, business regulatory framework, productivity, informality, Bolivia.
    JEL: D23 H11 H21
    Date: 2020–04
  5. By: Michael Danquah; Kunal Sen
    Abstract: In many low-income transition countries, where formal institutions such as courts do not function effectively, informal institutions are often used by firms to minimize transaction risks. We examine the role of informal institutions, in the forms of relational contracting and social networks, in determining the risks that firms are willing to bear in their transactions with their suppliers and customers, and whether firms that bear such risks have higher firm productivity. Our country context is Myanmar, a country which is making a transition from a socialist to market-oriented economy.
    Keywords: Firm productivity, informal institutions, relational contracting, Social networks, Transitional economies, Myanmar
    Date: 2020

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