nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2020‒12‒21
eight papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Size, heterogeneity and distributional effects of self-employment income tax evasion in Italy By Martina Bazzoli; Paolo Di Caro; Francesco Figari; Carlo V. Fiorio; Marco Manzo
  2. The Effect of Exports on Labor Informality : Evidence from Argentina By Safojan, Romina
  3. Formalization and productivity: Firm-level evidence from Viet Nam By Jann Lay; Tevin Tafese
  4. Trade Liberalization, Income, and Multidimensional Deprivation in Brazil By Louisiana Teixeira
  5. Can Nudges Increase Take-up of the EITC?: Evidence from Multiple Field Experiments By Elizabeth Linos; Allen Prohofsky; Aparna Ramesh; Jesse Rothstein; Matt Unrath
  6. Mind the Gap: Schooling, Informality and Fiscal Externalities in Nepal By Hoyt Bleakley; Bhanu Gupta
  7. Impact of Alternative Funding Instruments to Improve Access to Finance in SMEs: Evidence from Vietnam By Jayasooriya, Sujith
  8. Préface : Economie informelle et performances budgétaires : Une analyse par les régressions quantiles en panel. By Isabelle Do Santos

  1. By: Martina Bazzoli; Paolo Di Caro; Francesco Figari; Carlo V. Fiorio; Marco Manzo
    Abstract: We measure tax evasion in Italy by estimating a food expenditure equation that disentangles households with prevalent income from self-employment, which is self-declared, from those with mostly third-party reported income. By using a novel dataset that links the 2013 Italian Household Budget Survey with individual tax records over a period of 7 years, we reduce measurement error by a great extent. We also depart from the usual constant share of underreporting, showing that underreporting heterogeneity among self-employed is significant, and is larger for singles and for college-educated households. We show that self-employed workers in Italy exhibit a similar attitude to tax evasion as those in other developed countries. Therefore, we point to the structure of the economy for an explanation of why aggregate tax evasion in Italy is larger than in other developed countries. The estimated heterogeneity of underreporting behavior of households combined with the use of a tax-benefit microsimulation model have allowed us to shed light on the distributional effects of income tax evasion, showing that almost 73% of the missing revenue is attributable to tax-payers at the top of the income distribution.
    Date: 2020–10
  2. By: Safojan, Romina (Tilburg University, School of Economics and Management)
    Date: 2019
  3. By: Jann Lay; Tevin Tafese
    Abstract: Using a firm-level panel dataset on private small- and medium-sized enterprises (SMEs) in Viet Nam's manufacturing sector, this paper examines productivity dynamics of formal and informal firms. We decompose productivity changes into changes within and between formal and informal firms. We assess the contributions of firm entry and exit as well as informal-formal transitions. Our results show that productivity is considerably lower and misallocation more prevalent in the informal than in the formal sector.
    Keywords: formalization, Productivity, Firm productivity, Viet Nam, Misallocation
    Date: 2020
  4. By: Louisiana Teixeira (Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres, LEDA-DIAL - Développement, Institutions et Modialisation - LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres - CNRS - Centre National de la Recherche Scientifique, IRD - Institut de Recherche pour le Développement)
    Abstract: The aim of this study is to treat the trade liberalization's impacts in both monetary and non-monetary conditions. Using the difference-indifferences method and a panel from 1987-1997, the obtained evidence suggests that trade liberalization have differently impacted the labor force within formality and informality; import and export sectors; in terms of income and household's deprivation. Trade have worsened the average income and implied a deterioration in the household's multidimensional conditions in the formal sectors and contributed to the labor informalization process already underway, putting in evidence the migration of workers towards informality. Moreover, although the shock of trade harmed more intensely import sectors, export sectors would be expelling skilled better-paid workers to specialize in unskilled lower paid labor. The trade liberalization perpetuated the international division of labor and was unable to permit structural changes capable of adjusting distortions inherent to the national productive structure.
    Keywords: Trade Liberalization,Labor,Income,Multidimensional Poverty
    Date: 2020–11–10
  5. By: Elizabeth Linos; Allen Prohofsky; Aparna Ramesh; Jesse Rothstein; Matt Unrath
    Abstract: The Earned Income Tax Credit (EITC) distributes more than $60 billion to over 20 million low-income families annually. Nevertheless, an estimated one-fifth of eligible households do not claim it. We ran six pre-registered, large-scale field experiments to test whether “nudges” could increase EITC take-up (N=1million). Despite varying the content, design, messenger, and mode of our messages, we find no evidence that they affected households’ likelihood of filing a tax return or claiming the credit. We conclude that even the most behaviorally informed low-touch outreach efforts cannot overcome the barriers faced by low-income households who do not file returns.
    JEL: D91 H24 H26 I38
    Date: 2020–11
  6. By: Hoyt Bleakley (University of Michigan); Bhanu Gupta (Ashoka University)
    Abstract: While increasing average years of school has been a development priority for decades, the associated fiscal costs and benefits have been less studied, in part because of the lack of appropriate data. Recently UNESCO organized a project measuring the extent of subsidies, by level of schooling, from all levels of government, in eight developing countries. One of these countries was Nepal, which also has a household budget survey that permits us to estimate the degree of formality, tax payment, and benefit receipt as a function of years of schooling. Using a simple Mincer-like model, we estimate the fiscal externality associated with an additional year of school. In contrast to previous literature on social returns and assumptions underlying multilateral development goals, we find that within primary school, fiscal benefits and costs, on the margin, are quite balanced, with subsidies closest to the present value of future taxes minus benefits. At higher levels of schooling, however, marginal fiscal benefits exceed costs by 5 percent of per-capita consumption.
    Keywords: Taxation, Subsidies, Schooling Decision, Nepal
    Date: 2020–12
  7. By: Jayasooriya, Sujith
    Abstract: Access to finance in the digital era is innovative with the different alternative funding approaches. In emerging markets, digital innovation of the financial sources is not limited to the own capital or borrowing from bank or credit institutions but numerous paths of financing. The purpose of the research is to recognize the alternative and innovative funding tools including borrowed from bank/credit institution, borrowed against interest from other sources, and borrowed from other sources without interest, peer-to-peer (P2P) lending -borrowed from friends and relatives without interest-, and stocks issued. The data was obtained from the survey of 2647 enterprises conducted by the UNU WIDER 2015 in Vietnam. The probit model approach for access to finance is used to analyze the impact of alternative funding tools for enterprises. The results predict the use of alternative funding tools for startup capital and investment financing of the firms separately. The results revealed that sources of start-up capital from founders’ own money, loans from friends and acquaintances, finance/investments from other enterprises, domestic bank loan, and Informal credit association (money lenders, informal bank, pawnshop) are positively and significantly affect the access to finance, while loans from family members, business associations, and international bank loans are not significant. Meanwhile, own funding, bank/credit institution, borrowed against interest from other sources, and borrowed from other sources without interest, borrowed from friends and relatives without interest have significantly affected the access to finance. In a summary, the alternative funding tools are an important source for financing SMEs in Vietnam.
    Keywords: Alternative funding, P2P lending, SMEs, Access to Finance
    JEL: L11 L22 L25 M13
    Date: 2020–11–27
  8. By: Isabelle Do Santos
    Abstract: Dans les pays en développement et économies émergentes, le secteur informel occupe une place prépondérante dans la vie économique avec un coût énorme pour les finances publiques. Dans ce papier, nous étudions l’effet de la taille du secteur informel sur les performances budgétaires de ces pays. Pour prendre en compte les effets extrêmes, nous utilisons les nouvelles méthodes de régressions quantiles en panel avec prise en compte des effets fixes. Nos résultats montrent que le développement de l’activité informelle a un impact négatif, significatif et non-linéaire sur les performances budgétaires des pays en développement. En limitant les ressources publiques, la prolifération de l’activité informelle réduit significativement les marges de manœuvre des pouvoirs publics dans les dépenses publiques y compris les dépenses sociales. Plus important encore, nos résultats révèlent que les pays les plus fragiles sur le plan budgétaire souffrent davantage du développement de l’activité informelle.
    Keywords: Activité informelle, finances publiques, régressions quantiles en panel..
    JEL: H11 H26 C22 C23
    Date: 2020

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