nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2020‒08‒17
seven papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Informality, Consumption Taxes, and Redistribution By Pierre Bachas; Lucie Gadenne; Anders Jensen
  2. Labor market policies in a Roy-Rosen bargaining economy By Jales, Hugo; Yu, Zhengfei
  3. COVID-19, Lockdowns, and Africa’s Informal Sector: Lessons from Ghana By Avenyo, Elvis K.; Francois, John Nana; Zinyemba, Tatenda P.
  4. The participation dividend of taxation: how citizens in Congo engage more with the state when it tries to tax them By Weigel, Jonathan
  5. The Weak State Trap By Leopoldo Fergusson; Carlos A. Molina; James A. Robinson
  6. Informalidad en los Mercados Laborales Regionales. Análisis desde Microdatos By A. Daniela Cristina; Alberto J. Figueras; Iván Iturralde; Valeria J. Blanco
  7. ¿Por qué no declarar todo? Determinantes de la subfacturación empresarial en la Argentina By Florencia Verónica Pedroni; Anahí Briozzo; Gabriela Pesce

  1. By: Pierre Bachas; Lucie Gadenne; Anders Jensen
    Abstract: Can consumption taxes reduce inequality in developing countries? We combine household expenditure data from 31 countries with theory to shed new light on the redistributive potential and optimal design of consumption taxes. We use the type of store in which purchases occur to proxy for informal (untaxed) consumption. This enables us to characterize the informality Engel curve: we find that the budget share spent in the informal sector steeply declines with income, in all countries. The informal sector thus makes consumption taxes progressive: households in the richest quintile face an effective tax rate that is twice that of the poorest quintile. We extend the standard optimal commodity tax model to allow for informal consumption and calibrate it to the data to study the effects of different tax policies on inequality. Contrary to consensus, we show that consumption taxes are redistributive, lowering inequality by as much as personal income taxes. Once informality is taken into account, commonly used redistributive policies, such as reduced tax rates on necessities, have a limited impact on inequality. In particular, subsidizing food cannot be justified on equity or efficiency grounds in several poor countries.
    JEL: E26 H21 H23 O12 O23
    Date: 2020–06
  2. By: Jales, Hugo; Yu, Zhengfei
    Abstract: We study the effects of labor market policies using a bargaining model featuring compensating differentials (Rosen, 1986) and self-selection (Roy, 1951). The framework allows us to create a taxonomy of formal and informal employment. We use the model to estimate the effects of the minimum wage for the Brazilian economy using the "PNAD" dataset for the years 2001-2005. Our results suggest that, although the minimum wage generates unemployment and reallocation of labor to the informal sector, the policy might be desirable if the employment losses are concentrated in jobs characterized by low surplus.
    Date: 2020
  3. By: Avenyo, Elvis K. (UNU-MERIT, Maastricht University, Department of International Development, University of Oxford, and SARChI Industrial Development, University of Johannesburg); Francois, John Nana (College of Business, West Texas A&M University); Zinyemba, Tatenda P. (UNU-MERIT, Maastricht University)
    Abstract: Using unique survey data on informal enterprises, we draw inferences about the potential effects of COVID-19 on informal enterprises in Ghana, beyond the anecdotes which currently dominate the discourse. We draw important lessons on how the lockdown may affect the performance of female- and male-owned informal enterprises in two urban areas of Ghana; Accra and Tema. The following results emerge from the multivariate decomposition regression: first, we find an unexplained spatial gap in sales between informal owners who reside in Accra and Tema. Second, we find no gender gap in sales or innovation, however, there are explained and unexplained gender-gaps in how size affects current sales of informal enterprises. Hence, given that the lockdown affects business performance, we conjecture that the COVID-19 pandemic is likely to increase or introduce gender- and spatial-gaps in the performance of informal enterprises.
    Keywords: COVID-19, Pandemic, Gender, Informal enterprises, Business performance, Urban areas, sub-Saharan Africa, Ghana
    JEL: D72 O55 J16 P16 R12
    Date: 2020–06–18
  4. By: Weigel, Jonathan
    Abstract: This paper provides evidence from a fragile state that citizens demand more of a voice in the government when it tries to tax them. I examine a field experiment randomizing property tax collection across 356 neighborhoods of a large Congolese city. The tax campaign was the first time most citizens had been registered by the state or asked to pay formal taxes. It raised property tax compliance from 0.1% in control to 11.5% in treatment. It also increased political participation by about 5 percentage points (31%): citizens in taxed neighborhoods were more likely to attend townhall meetings hosted by the government or to submit evaluations of its performance. To participate in these ways, the average citizen incurred costs equal to their daily household income, and treated citizens spent 43% more than control. Treated citizens also positively updated about the provincial government, perceiving more revenue, less leakage, and a greater responsibility to provide public goods. The results suggest that broadening the tax base has a ‘participation dividend,’ a key idea in historical accounts of the emergence of inclusive governance in early modern Europe and a common justification for donor support of tax programs in weak states.
    JEL: D73 H20 P48
    Date: 2020–05–21
  5. By: Leopoldo Fergusson; Carlos A. Molina; James A. Robinson
    Abstract: Development outcomes come in `clusters' that seem difficult to exit. Using original data from Colombia, we present evidence of the interconnection between two critical political components: state weakness and clientelism. State weakness creates the right environment for clientelism to ourish. Clientelism sets in place a structure of incentives for politicians and citizens that is detrimental to building state capacity. We show that vote buying, as a measure of clientelism, and tax evasion, as a measure of state weakness, are highly correlated at the individual level. We also report evidence that both practices are widely accepted in society, a result consistent with a deeply entrenched relationship of mutually reinforcing in uences. Finally, we propose a set of mechanisms that underlie the hypothesis that a weak state and widespread clientelism are part of a political equilibrium with multiple feedback loops. Our results suggest that state weakness is a trap that is likely hard to exit.
    Keywords: State capacity, tax evasion, clientelism, vote buying, social desirability bias, list experiments
    JEL: D72 D73 H26 C83 C93
    Date: 2020–07–13
  6. By: A. Daniela Cristina; Alberto J. Figueras; Iván Iturralde; Valeria J. Blanco
    Abstract: El trabajo se enfoca en el problema de la informalidad laboral en la Argentina. El tema se trabaja desde una dimensión centralmente micro, a partir de datos individuales de los agentes, según lo reportan las ondas disponibles de la EPH en el período 2005-2018. Siendo la variable dependiente una dummy que indica la condición de empleo formal de los individuos, obteniendo una aproximación de la probabilidad de que un agente, de acuerdo a sus circunstancias y condiciones personales (edad, género, nivel educativo, etc.), incluyendo su ubicación geográfica (jurisdicción de residencia, que implícitamente captura perfiles macroeconómicos presentes en esa área geográfica: instituciones, economía, cultura y sociedad) se encuentre en el sector formal (o caiga en el sector informal, deducido por su complemento probabilístico). Las estimaciones se efectúan considerando las 24 jurisdicciones que componen el país, representadas por los centros urbanos relevados en la Encuesta Permanente de Hogares (EPH) por el INDEC durante el periodo 2005-2018.
    JEL: J01 J21 J81 R23
    Date: 2019–11
  7. By: Florencia Verónica Pedroni; Anahí Briozzo; Gabriela Pesce
    Abstract: El presente trabajo tiene por objetivo identificar los factores determinantes de la subdeclaración de ingresos en firmas argentinas formalmente registradas y su evolución desde la óptica de los empresarios. Se propone un modelo conceptual y se estima empíricamente mediante una regresión logística a partir de datos fusionados de secciones cruzadas independientes de los años 2010 y 2017 de las bases Enterprise Surveys del Banco Mundial. Los resultados muestran que la subfacturación es un fenómeno multicausal donde los impuestos pierden importancia a la luz de otros determinantes tales como: corrupción, regulación y burocracia, calidad de los servicios públicos y gubernamentales, probabilidad de detección, informalidad del sector e inestabilidad política. De esta forma, se brinda sustento a la escuela de pensamiento que reconoce a las instituciones políticas y sociales que regulan la economía como causantes del sector informal, por sobre aquella corriente que identifica a los elevados impuestos (Johnson et al., 2000). Asimismo, los hallazgos reconocen las características de las empresas con mayor propensión a subdeclarar ventas (menor tamaño, ventas al mercado interno, sector manufacturero, sin financiamiento externo, con empresarios del género masculino y escasa experiencia en el rubro). La presente investigación representa un aporte a la literatura empírica pues estudia la informalidad en compañías registradas con un enfoque cuantitativo microeconómico a nivel empresa en una economía emergente como la Argentina. Los hallazgos resultan de relevancia para el desarrollo de políticas públicas tendientes a reducir la subdeclaración de ingresos.
    Keywords: economía informal; subdeclaración de ingresos; impuestos; corrupción; burocracia; calidad institucional; datos microeconómicos
    JEL: D22 E26 H26 H32 M21 O17
    Date: 2019–11

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