nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2020‒11‒23
nine papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Informal-formal workers' transition in Nigeria: A livelihood analysis By Abiodun O. Folawewo; Olusegun A. Orija
  2. Finance, Gender, and Entrepreneurship: India's Informal Sector Firms By Gang, Ira N.; Natarajan, Rajesh Raj; Sen, Kunal
  3. Sector of Economic Activity and Poverty in Benin By Abomey-Calavi; Wilfied Houedokou
  4. Progress and stagnation in the livelihood of informal workers in an emerging economy: Long-term evidence from Indonesia By Mayang Rizky; Daniel Suryadarma; Asep Suryahadi
  5. Political connections and firm's formalization: Evidence from Vietnam By Duc Anh Dang; Hai Anh La
  6. Perishability, dynamic pricing and price discrimination: evidence from flower markets in Bogotá By Ortiz, Santiago; Castelblanco, Geraldine; Mantilla, Cesar
  7. Tax preferences and optimal income taxation By Arbex, Marcelo Aarestru; Mattos, Enlinson
  8. The Incidence of VAT Evasion By Zareh Asatryan; David Gomtsyan
  9. Understanding Cross-Cultural Dfferences in Peer Reporting Practices: Evidence from Tax Evasion Games in Moldova and France By Rostan Romaniuc; Dimitri Dubois; Eugen Dimant; Adrian Lupusor; Valeriu Prohnitchi

  1. By: Abiodun O. Folawewo; Olusegun A. Orija
    Abstract: This study evaluates the effects of the informal sector on Nigerian workers' livelihoods and analyses workers' transitions within the informal sector and between informal and formal employment. A binary logit model is applied to General Household Survey panel data for the periods 2010/11, 2012/13, and 2015/16. We find that informal employment has the greatest impact on workers' livelihoods in terms of earnings. Results also indicate the existence of a high level of dynamic transition of workers within different types of informal employment.
    Keywords: Regression analysis, Employment, Formal and informal, Nigeria, transitions
    Date: 2020
  2. By: Gang, Ira N. (Rutgers University); Natarajan, Rajesh Raj (Sikkim University); Sen, Kunal (University of Manchester)
    Abstract: How does informal economic activity respond to increased financial inclusion? Does it become more entrepreneurial? Does access to new financing options change the gender configuration of informal economic activity and, if so, in what ways and what directions? We take advantage of nationwide data collected in 2010/11 and 2015/16 by India's National Sample Survey Office on unorganized (informal) enterprises. This period was one of rapid expansion of banking availability aimed particularly at the unbanked, under-banked, and women. We find strong empirical evidence supporting the crucial role of financial access in promoting entrepreneurship among informal sector firms in India. Our results are robust to alternative specifications and alternative measures of financial constraints using an approach combining propensity score matching and difference-in-differences. However, we do not find conclusive evidence that increased financial inclusion leads to a higher likelihood of women becoming entrepreneurs than men in the informal sector.
    Keywords: entrepreneurship, financial constraints, gender, informal sector, difference-in-differences, India
    JEL: O12 G28 L26
    Date: 2020–11
  3. By: Abomey-Calavi; Wilfied Houedokou (Central Bank of West African States,Republic of Benin)
    Abstract: This study, based on the theory of labour market segmentation, assesses the participation in the labour market in connection with poverty status. Using cross-sectional data from the household standard living condition survey of 2006 and k-means algorithm, the paper shows that the labour market in Benin comprises five segments. These are characterized by irregular workers, rural vulnerable independent, rural competitive salaried, urban competitive salaried, and a mixed group of protected employees and independent with capital. The paper presents a poverty profile for each segment. The rural vulnerable independent segment and that of the rural competitive salaried proved to be the poorest. The poverty status was estimated with a continuous censored dependent variable with selection controlled for by the conditional probabilities deriving from a multinomial logit. Results show the presence of unobserved factors affecting participation in segments that influence poverty status. The study suggests that poverty in the labour market is addressed by moving away from the traditional subdivision of the labour market in formal and informal markets. The study recommends that the labour market be considered as a set of heterogeneous segments in terms of poverty status and employment characteristics. This sub-division into a segment goes beyond simple formal-informal classification
    Date: 2019
  4. By: Mayang Rizky; Daniel Suryadarma; Asep Suryahadi
    Abstract: We use long-spanning individual longitudinal data to examine the long-term labour market outcomes of low-tier informal workers. We investigate their characteristics, calculate the extent of switching, and identify the characteristics of those who have switched. Finally, we estimate the earnings premium of switching. We find that individuals are negatively selected into low-tier informal work. Almost half of individuals who started out as a low-tier informal worker remained as low-tier informal workers through the next 8-19 years. The other half switched on average three times.
    Keywords: Earnings, Indonesia, Informal sector, Long-run effects
    Date: 2020
  5. By: Duc Anh Dang; Hai Anh La
    Abstract: The literature shows that political connections have different effects on firms' activities. However, the question of how political connections affect firms' formalization has not been explored. Using data from three waves of the Vietnam Small and Medium Enterprise Survey for the period from 2007 to 2011, this paper aims to examine the relationship between political connections and firms' formalization in Viet Nam. We find that firms with political connections increase their share of formal workers.
    Keywords: Political connections, formalization, Viet Nam
    Date: 2020
  6. By: Ortiz, Santiago; Castelblanco, Geraldine; Mantilla, Cesar
    Abstract: Perishable products traded in informal markets might be subject to price variations in two opposite directions. Whereas the absence of posted prices opens the door for price discrimination based on some buyers' attributes, the reduction in quality over time might decrease prices to secure a transaction. We use an audit experiment to detect these pricing patterns in the informal flower markets nearby the cemeteries of Bogotá, Colombia. We analyze 441 price quotations. We interpret the lower prices in the afternoon than in the morning as evidence of dynamic pricing. Regarding price discrimination, we find that women are quoted a higher price than men, whereas attire (formal versus informal) does not affect prices. The price variations associated with the time of the day and the gender of the buyer appear to be independent of each other.
    Date: 2020–11–04
  7. By: Arbex, Marcelo Aarestru; Mattos, Enlinson
    Abstract: We develop a two-agent model where agents have preferences over consumption, leisure, independent and interdependent tax preferences - personal (own tax payments) and interpersonal (average tax payments in the economy). We characterize the optimal labor income taxation under different assumptions regarding tax preferences (tax affinity, hostility, conformity and opposition). We find that tax preferences can either amplify or reduce the marginal tax increase of the low-ability type. When individuals can hide a fraction of their earnings at a resource cost, the link between consumption and tax payments is broken. Tax evasion affects the aggregate measure of taxes and what people take into account and care about when making their optimal decisions. We find that the trade-off associated with tax preferences and consumption have their effects intensified in the optimal low-ability income tax. With evasion, the marginal income tax of high-ability types is no longer zero - it is optimal to subsidize this type and avoid the mimicking of low-ability individuals.
    Date: 2020–11
  8. By: Zareh Asatryan; David Gomtsyan
    Abstract: Who benefits from the evasion of value added taxes (VAT)? Using a reform that enforced VAT on previously non-compliant large retailers in Armenia, we estimate a one-third passthrough of the tax burden on prices. This suggests that pre-enforcement evasion rents were broadly shared with consumers through lower prices. Our theoretical and empirical results explain this low passthrough rate by the supply-chain effects and second-order compliance responses of firms to VAT enforcement. Our distributional analysis shows that households at the bottom of the income distribution benefit more from the rents of evasion.
    Keywords: value added tax, incidence, passthrough, evasion, enforcement, distributional effects
    JEL: D11 H22 H26
    Date: 2020
  9. By: Rostan Romaniuc (CEREN - Centre de Recherche sur l'ENtreprise [Dijon] - BSB - Burgundy School of Business (BSB) - Ecole Supérieure de Commerce de Dijon Bourgogne (ESC)); Dimitri Dubois (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Eugen Dimant (University of Pennsylvania [Philadelphia]); Adrian Lupusor (Expert-Grup); Valeriu Prohnitchi (Expert-Grup)
    Abstract: Authorities rely on reporting from private citizens to detect and enforce more than a trivial portion of e ective law breaking. This article is the first to experimentally study the cultural aspect of peer reporting. By collecting data in a post-Soviet country (Moldova), we focus in particular on how the Soviet legacy of using citizens as private informants may have a long-lasting e ect on their willingness to cooperate with state authorities in present day; we then contrast these e ects with peer reporting behavior in a Western society (France). Our results suggest that participants in Moldova view the act of cooperating with central authorities as less socially acceptable than subjects in France and that participants in Moldova engage less frequently in peer reporting than participants in France. However, we also find that less reporting does not necessarily imply less tax compliance. Participants in both countries share very similar tax compliance rates. We explain the e ect of peer reporting on tax compliance in Moldova by the country's past experience during the Soviet era when being reported to central authorities was common and came with serious consequences for the person being denounced, ranging from shaming to expropriation.
    Abstract: U n d e r s t a n d i n g C r o s s-C u l t u r a l D f f e r e n c e s i n P e e r R e p o r t i n g P r a c t i c e s : E v i d e n c e f r o m T a x E v a s i o n G a me s i n Mo l d o v a a n d F r a n c e R u s t a m R o m a n i u c D i m i t r i D u b o i s E u g e n D i m a n t A d r i a n L u p u s o r A d r i a n L u p u s o r & V a l e r i u P r o h n i t c h i C E E-M Wo r k i n g P a p e r 2 0 2 0-1 6
    Date: 2020–11–06

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