nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2021‒01‒04
nine papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Structural change and formal sector employment growth in Indonesia By Devanto Shasta Pratomo; Chris Manning
  2. Increasing the Cost of Informal Workers: Evidence from Mexico By Brenda Samaniego de la Parra; León Fernández Bujanda
  3. Vulnerable employment of Egyptian, Jordanian, and Tunisian youth: Trends and determinants By Shireen AlAzzawi; Vladimir Hlasny
  4. Informality and firm performance in Myanmar By Hanna Berkel; Finn Tarp
  5. Monetary Growth Rules in an Emerging Open Economy By Maryam Mirfatah; Vasco J. Gabriel; Paul Levine
  6. Spillovers and Long Run Effects of Messages on Tax Compliance: Experimental Evidence from Peru By Juan F. Castro; Daniel Velásquez; Arlette Beltrán; Gustavo Yamada
  7. Study and Reports on the VAT Gap in the EU-28 Member States: 2020 Final Report By Grzegorz Poniatowski; Adam Åšmietanka; Mikhail Bonch-Osmolovskiy
  8. Improving tax compliance without increasing revenue: Evidence from population-wide randomized controlled trials in Papua New Guinea By Christopher Hoy; Luke McKenzie; Mathias Sinning
  9. Factors Influencing Access to Formal Credit of Unincorporated Enterprises in India: Analysis of NSSO's Unit-level Data. By Badola, Shivani; Mukherjee, Sacchidananda

  1. By: Devanto Shasta Pratomo; Chris Manning
    Abstract: The study provides evidence on the transition and growth of the formal sector in the Indonesian economy. It utilizes data from the National Labour Force Survey (SAKERNAS) for tracking the previous work status of workers as formal or informal workers. The study also examines the implication of formalization of employment for the different rates of earnings of formal sector workers, given their human capital characteristics and different industries of employment. The study finds that the growth of employment in the formal sector is mainly the result of entry of younger and better educated new entrants. Although there is some mobility from the informal to the formal sector, the results show that individuals who were previously working in the informal sector are less likely to move into formal sector. In terms of earnings, there is evidence of scarring effects: individuals who are initially in the formal sector earn more than individuals who are initially in the informal sector.
    Keywords: informal sector, job mobility, human capital, earnings differentials
    JEL: J24 J31 J46 J62 O17 O47
    Date: 2020
  2. By: Brenda Samaniego de la Parra; León Fernández Bujanda
    Abstract: This paper estimates the effects of increasing the cost of informal jobs on formal firms' and workers' outcomes. We create novel datasets combining administrative records and household surveys data, and exploit exogenous variation in this cost generated by over 480,000 random work-site inspections in Mexico. Increasing the cost of informal jobs at formal firms leads to lower employment growth, lower formal job creation, and higher formal and informal job destruction. For informal workers, inspections increase the probability of being formalized at the inspected firm, but also increase the probability of dissolving the informal match. Transitioning to a formal job due to an inspection increases the probability of being poached to a new, formal job.
    JEL: D22 E26 J46
    Date: 2020–12
  3. By: Shireen AlAzzawi; Vladimir Hlasny
    Abstract: Youths in the Middle East and North Africa face the highest unemployment rates in the world. Those who are employed are pushed to accept informal sector jobs that are insecure, unsafe, and lack non-wage benefits. Precarious employment is pervasive among lower socio-economic groups, leading to the perpetuation of misery across generations. Understanding employment outcomes therefore requires a broad focus encompassing the access to decent work, the evolution in this access over time, and the initial conditions.
    Keywords: vulnerable employment, Informality, youth unemployment, Middle East and North Africa, Regression analysis, worker vulnerability, Vulnerability, Employment
    Date: 2020
  4. By: Hanna Berkel; Finn Tarp
    Abstract: Using a novel panel survey of enterprises in Myanmar, we compare the performance of manufacturing firms by three different informality definitions. The first is binary, based on whether firms pay taxes. The second captures five categories of registration with the authorities, and the third definition relates to three groupings of the informality status of a firm's workers. Depending on the informality concept used, formalization has positive, insignificant, and negative performance outcomes.
    Keywords: firms, Informality, Myanmar, Business, business registration, Manufacturing
    Date: 2020
  5. By: Maryam Mirfatah (University of Surrey and CIMS); Vasco J. Gabriel (University of Surrey and CIMS); Paul Levine (University of Surrey and CIMS)
    Abstract: We develop a small open economy model interacting with a rest-of-the-world bloc, containing several emerging economies' features: Calvo-type nominal frictions in prices and wages, financial frictions in the form of limited asset markets participation (LAMP), as well as both formal and informal sectors. In addition, we introduce incomplete exchange rate pass-through via a combination of producer and local currency pricing for exports, as well commodity-dependence in the form of an oil export sector. We contrast the stability and determinacy properties of money growth and standard Taylor-type interest rate rules, showing that monetary rules are stable regardless of the level of asset market participation, i.e. they avoid the inversion of the Taylor principle. We estimate our 2-bloc model using data for Iran and the USA employing Bayesian methods and we study the empirical relevance of the frictions in our model. Our results reveal important propagation channels active in emerging economies and that taking these into account is essential for policymaking decisions. Indeed, shocks to the economy are amplified by the presence of LAMP, while trade autarky further intensifies the effects of financial frictions. On the other hand, the informal sector acts as buffer to several shocks, lowering the variability of aggregate and formal fluctuations.
    Date: 2020–09
  6. By: Juan F. Castro (Universidad del Pacífico); Daniel Velásquez (University of Michigan); Arlette Beltrán (Universidad del Pacífico); Gustavo Yamada (Universidad del Pacífico)
    Abstract: We carry out a randomized controlled trial to evaluate the effect of three different types of messages sent to taxpayers on their compliance with the rental income tax (direct effect) and the spillovers produced on payments related to the capital gains and the self-employment income taxes. One message highlights detection, other appeals to social norms, and the third type appeals to altruism. This is the first study to evaluate if these messages can produce spillovers across taxes and to perform a long term follow-up. This is important to determine if the treatment increases tax revenues. We find that the message addressing detection produces a positive and permanent direct effect and a negative but transitory spillover on the other two taxes. Overall, it increases tax revenues by US$3.92 per dollar spent in the long run. The message appealing to social norms has no direct effect but produces a permanent negative spillover on the capital gains tax. Ignoring this spillover would have lead one to conclude that this message is innocuous when in fact produces a loss of US$ 5.20 per dollar spent in the long run. The message appealing to altruism produces a transitory negative e ect and no spillovers, and has no effect on tax revenues in the long run.
    Keywords: Social norms, Altruism, Tax evasion, Randomized controlled trial, Latin America
    JEL: D91 K42 H24 H26 H41
    Date: 2020–12
  7. By: Grzegorz Poniatowski; Adam Åšmietanka; Mikhail Bonch-Osmolovskiy
    Abstract: This Study contains Value Added Tax (VAT) Gap estimates for 2018, fast estimates using a simplified methodology for 2019, the year immediately preceding the analysis, and includes revised estimates for 2014-2017. It also includes the updated and extended results of the econometric analysis of VAT Gap determinants initiated and initially reported in the 2018 Report (Poniatowski et al., 2018). As a novelty, the econometric analysis to forecast potential impacts of the coronavirus crisis and resulting recession on the evolution of the VAT Gap in 2020 is reported. In 2018, most European Union (EU) Member States (MS) saw a slight decrease in the pace of gross domestic product (GDP) growth, but the economic conditions for increasing tax compliance remained favourable. We estimate that the VAT total tax liability (VTTL) in 2018 increased by 3.6 percent whereas VAT revenue increased by 4.2 percent, leading to a decline in the VAT Gap in both relative and nominal terms. In relative terms, the EU-wide Gap dropped to 11 percent and EUR 140 billion. Fast estimates show that the VAT Gap will likely continue to decline in 2019.
    Keywords: consumption taxation, VAT, tax fraud, tax evasion, tax avoidance, tax gap, tax non-compliance, policy gap
    JEL: H24 H26
    Date: 2020
  8. By: Christopher Hoy; Luke McKenzie; Mathias Sinning
    Abstract: This paper studies the impact of “nudges” on taxpayers with varying tax compliance histories in Papua New Guinea. We present the results from two population-wide randomized controlled trials in a setting that is characterized by low compliance rates and a lack of effective enforcement. We test the impact of text messages, flyers and emails that remind taxpayers of declaration due dates and provide information about the public benefits from paying tax. We find that the treatments increased the number of tax declarations filed without increasing the amount of tax paid because the taxpayers who responded to the nudges were largely exempt from paying tax. This result is consistent across tax types, communication channels and time periods. We also find that the treatments had no impact on previously non-filing taxpayers. Collectively, our results illustrate that taxpayers who face the lowest cost from complying are most likely to respond to a nudge.
    Keywords: Tax Compliance, Field Experiments, Behavioral Economics
    JEL: C93 D91 H2 H20 O1 O17
    Date: 2020
  9. By: Badola, Shivani (National Institute of Public Finance and Policy); Mukherjee, Sacchidananda (National Institute of Public Finance and Policy)
    Abstract: Unincorporated enterprises significantly contribute to India's GDP and generate large scale employment. Lack of access to formal credit often constrains enterprises to scale up. Understanding factors influencing access to formal credit of unincorporated enterprises is important which may help enterprises to improve performance and become credit worthy. For creditors, present analysis may help to broad base the criteria in selection and disbursement of credit to enterprises. The present paper explores the factors which influence access to formal credit of unincorporated enterprises across states in India. Results show that various operational and economic characteristics influence the access to formal credit. The analysis indicates that size of an enterprise (measured in terms of number of workers, total assets, etc.), gross value added, turnover, maintenance of written and bank account, years of operation, internet usage, female entrepreneur, registration under various acts/authorities, ownership type, enterprise type, type of activities (manufacturing, services or trading), enterprises facing problems, government assistance, state specific variables etc. are statistically significant factors.
    Keywords: Unincorporated enterprises ; outstanding loan liabilities ; access to formal credit ; informal credit ; Probit Model ; India
    JEL: E44 E51 G20 G21 L53
    Date: 2020–12

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