nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2020‒09‒07
five papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Labor Market Search, Informality and Schooling Investments By Matteo Bobba
  2. The $100 Million Nudge: Increasing Tax Compliance of Businesses and the Self-Employed using a Natural Field Experiment By Justin E. Holz; John A. List; Alejandro Zentner; Marvin Cardoza; Joaquin Zentner
  3. The impact of internet penetrationon corporate income tax filing in South Africa By Lediga, Collen
  4. Empowering consumers to reduce corporate tax avoidance: Theory and Experiments By Fatas, Enrique; Morales, Antonio J.; Sonntag, Axel
  5. Ocupación en la economía informal, mercado laboral urbano y crecimiento económico, 2001–2019: un análisis vectorial de corrección de errores By Francisco José Pérez Torres

  1. By: Matteo Bobba
    Abstract: We develop a search and matching model where firms and workers are allowed to form matches (jobs) that can be formal or informal. Workers optimally choose the level of schooling acquired before entering the labor market and whether searching for a job as unemployed or as self-employed. Firms optimally decide the formality status of the job and bargain with workers over wages. The resulting equilibrium size of the informal sector is an endogenous function of labor market parameters and institutions. We focus on an increasingly important institution: a “dual” social protection system whereby contributory benefits in the formal sector coexist with non-contributory benefits in the informal sector. We estimate preferences for the system - together with all the other structural parameters of the labor market -using labor force survey data from Mexico and the time-staggered entry across municipalities of a non-contributory social program. Policy experiments show that informality may be reduced by either increasing or decreasing the payroll tax rate in the formal sector. They also show that a universal social security benefit system would decrease informality, incentivize schooling, and increase productivity at a relative fiscal cost that is similar to the one generated by the current system.
    JEL: Q
    Date: 2018–09–27
  2. By: Justin E. Holz; John A. List; Alejandro Zentner; Marvin Cardoza; Joaquin Zentner
    Abstract: This paper uses a natural field experiment to examine the effectiveness of specific nudges on tax compliance amongst firms and the self-employed in the Dominican Republic. In collaboration with the Dominican Republic’s tax authority, we designed messages for more than 28,000 self-employed workers and over 56,000 firms. Leveraging administrative tax data, we find evidence that our nudges (increasing the salience of prison sentences or public disclosure of tax evaders) have large effects on increasing tax compliance, primarily working through the channel of decreasing claimed tax exemptions. Interestingly, we find that firms are more impacted than the self-employed, and that firm size is critically linked to nudge effectiveness: larger firms are considerably more influenced by nudges than smaller firms. We find this latter result noteworthy given the paucity of evidence showing significant behavioral impacts of nudges amongst the largest players in a market. Overall, our messages increased tax revenue by $193 million (roughly 0.23% of the Dominican Republic’s GDP in 2018), with over $100 million constituting income that the government would not have received without our field experimental nudges.
    JEL: C93 H2 H26
    Date: 2020–08
  3. By: Lediga, Collen
    Abstract: Tax administrations around the world have introduced e-filing of tax returns due to its potential to improve tax return filing compliance. The introduction of this service for businesses in South Africa has not yielded the expected results. Drawing on tax administrative data on tax return filing and population census data, the study aims at determining whether internet access in the country, could have contributed to the less impact of the introduced administrative intervention. Accounting for specific characteristics of the areas in the country, and geoclassication (urban or rural area), we find that an increase in the fraction of household areas with internet access by 10 percentage points, raises the fraction of businesses that do submit a tax return by 1.86 percentage points. The results of the analysis highlights that the impact of the introduction of e-filing services for tax returns submission, is dependent on the internet coverage of the area.
    Keywords: corporate taxation,e-filing,less developed countries,tax administration
    JEL: H2 H7
    Date: 2020
  4. By: Fatas, Enrique (Center for Social Norms and Behavioral Dynamics, University of Pennsylvania and School of Management, Universidad ICESI); Morales, Antonio J. (School of Economics, University of Malaga); Sonntag, Axel (Institute for Advanced Studies Vienna and Vienna Center for Experimental Economics, University of Vienna)
    Abstract: We analyze corporate tax avoidance in a theoretical model and in a stylized experimental Bertrand setting in which symmetric firms and consumers sell and buy a homogeneous product, when human participants make decisions as firms and consumers. We investigate how market power and information disclosure of firms’ tax avoidance behavior impacts corporate tax avoidance and market competition. By imposing a tax rating, corporate tax behavior becomes more transparent, and consumers actively and costly boycott firms that do not pay their taxes. Firms adapt and anticipate consumer boycotts and increase tax payments, and prices. When rating disclosure is voluntary, the positive effect on corporate tax compliance vanishes in large markets.
    Keywords: tax avoidance, policy measure, tax rating, transparency, lab experiment
    JEL: H26 C92 D78 D82 L15
    Date: 2020–08
  5. By: Francisco José Pérez Torres
    Abstract: Por cerca de cuatro décadas el país exhibe un considerable nivel de ocupación generado en la Economía Informal con importantes vínculos relacionados con el salario mínimo, el desempleo urbano, el empleo en los sectores de manufactura, comercio y servicios y con el crecimiento económico. Como estas variables no se mueven en el tiempo independientemente unas de las otras y se influyen mutuamente, este trabajo estudia el grado de importancia de ellas para explicar la variabilidad en la ocupación informal. A través de un MVCE se comprueba la existencia de relaciones de equilibrio de largo plazo entre estas variables y mediante el análisis de las funciones impulso respuesta y de descomposición de varianza se muestra cómo responde cada una de ellas ante los choques estocásticos que puedan registrar. Los resultados encontrados tienen implicaciones para la formulación de políticas que buscan reducir la Economía Informal y la ocupación generada en ella. *** For just about four decades the country exhibits a considerable level of occupation generated in the Informal Economy with important links related to the minimum wage, urban unemployment, employment in the sectors of manufacturing, commerce and services and with the economic growth. Since these variables do not move in the time independently one of another and mutually influence each other, this work studies the degree of importance of them to explain the movements experienced in the occupation generated in the field of Informal Economy. Through a MVCE, is verified the existence of long-term equilibrium relationships between these variables, and by analyzing the impulse response and variance decomposition functions, it is shown how each one responds to stochastic shocks that may be registered. The results found have certain implications for the formulation of policies that seek to reduce the Informal Economy and the occupation generated in this.
    Keywords: economía informal, salario mínimo, desempleo urbano, empleo, modelo VEC
    JEL: C32 E24 E26 J21 O17
    Date: 2020–08–25

This nep-iue issue is ©2020 by Catalina Granda Carvajal. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.