nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2021‒03‒29
fifteen papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Optimal Monetary Policy with Informality: A First Pass By Gomez, M.; Hairault, J.
  2. Informality, tax policy and the business cycle: Exploring the links By Granda, C.; García, D.
  3. Optimal monetary policy in a dual labor market: the role of informality By Gomez, M.
  4. Financial inclusion and its heterogeneous effect on household income By Rodríguez, D.; Gallego, J; Jaramillo, F.
  5. Measuring the Immeasurable: The Evolution of the Size of Informal Economy in the Agricultural Sector in the EU-15 up to 2019 By Friedrich Schneider; Mangirdas Morkunas; Erika Quendler
  6. Towards sustainable livelihood in the Tanzanian informal economy: Facilitating inclusion, organization, and rights for street vendors By Ilona Steiler; Chediel Nyirenda
  7. Long-run stability of money demand and monetary policy: the case of Algeria By Raouf Boucekkine; Mohammed Laksaci; Mohamed Touati-Tliba
  8. Corruption and Health Insurance for the Informal Sector in Sierra Leone By Jofre-Bonet, M.; Kamara, J.; Mesnard, A.
  9. Avoiding Taxes: Escaping the Exchange of Information: Tax Evasion via Citizenship-by-Investment By Dominika Langenmayr; Lennard Zyska
  10. What do Italians think about tax evasion? By Giovanni D’Alessio
  11. Fighting the soaring prices of agricultural food products -VAT versus Trade tariffs exemptions. A case study in Niger By Céline de Quatrebarbes; Bertrand Laporte; Stéphane Calipel
  12. L’économie informelle, une activité organisée « hors organisation » ? By Yvon Pesqueux
  13. Informalidad e instituciones: un análisis descriptivo a partir de la información mundial By Jaramillo, F.; Ríos, C.; Salazar, M.; Tapias, J.
  14. Análisis comparativo de la interacción entre la informalidad y el desarrollo económico By Jaramillo, F.; Ríos, C.; Salazar, M.; Tapias, J.
  15. Abordaje de la venta ambulante en Guayaquil - Ecuador : desde los discursos hegemónicos a un enfoque basado en los derechos By Villacrés, Lisette; Geenen, Sara

  1. By: Gomez, M.; Hairault, J.
    Abstract: Our paper aims to unveil how much the monetary policy shall deviate from the flexible-price allocation in an economy with a large informal sector. First of all, the presence of variable taxes in the formal sector generates an inflation bias under discretionary policy which increases with the size of the informal sector. Secondly, we find that only the formal sector due to tax distortion fluctuations is responsible for cost push shocks which are amplified in a more informal economy. The trade-off between inflation and the formal output gap is then dependent on the elasticity of the former variable with respect to the latter one, which is lower in a more informal economy. However, the optimal management of inflation also depends on the elasticity of the informal output gap with respect to the formal output gap. As this elasticity is decreasing with the size of the informal sector, whether inflation volatility (in terms of the aggregate output gap) is lower or higher in a more informal economy is ambiguous. By simulation, we show that economies with a larger informal sector should stabilize more inflation relative to the two sectoral output gaps.
    Keywords: Informality; optimal monetary policy; New-Keynesian macroeconomics;tax distortion
    JEL: E26 E52 E12 H21
    Date: 2020–06–02
  2. By: Granda, C.; García, D.
    Abstract: Despite the worldwide prevalence of informality, consensus on a reliable and consistent set of drivers and consequences of this phenomenon has been elusive to both researchers and policymakers. This study partly addresses this shortcoming by exploring the interactions between the informal economy and tax policy and how these are shaped by business cycle fluctuations. To this end, we identify robust determinants of both informality and taxation by means of an econometric analysis that accounts for bi-directional causality. Focusing on two different dimensions of informal activity and three tax policy instruments and employing numerous determinants over dozens of model combinations, we find that the signi cance of the relationship between informality and taxation depends on the speci c tax instrument under consideration. Thus, the informal economy may particularly affect the design of direct taxes. Also, the business cycle may have distinctive influences on informality and tax policy, so direct taxes appear to be acyclical or countercyclical while indirect taxes are strongly procyclical. We conclude by noting that how the business cycle affects the informal economy and taxation allows to substantiate evidence on the role of informality in the adoption of potentially destabilizing scal policies.
    Keywords: Informality; tax policy; business cycle
    JEL: E62
    Date: 2020–07–02
  3. By: Gomez, M.
    Abstract: In this paper I analyze the optimal monetary policy in emerging countries whose labor markets are mainly characterized by the presence of a large informal sector. I develop a closed economy model with nominal price and wage rigidities, search and matchingfrictions and a dual labor market. A formal one characterized by matching frictions, and nominal wage rigidities, and an informal one where wages are fully flexible. Under this framework, a trade-off between price and wage inflation emerges. I find that informality increases the response of price and wage inflation to aggregate productivity shocks. As a result, the presence of an informal sector increases the inefficient fluctuations of the labor market variables, such as unemployment, labor market tightness, and formal hiring rate. I derive the second-order approximation to the welfare of the representative agent, and then I characterize the optimal monetary policy for standard calibration of the model. I find that optimal policy with informality features significant deviations from price stability in response to aggregate productivity shocks.
    Keywords: Informality; Monetary policy; Nominal wage and price rigidities; Inflation targeting.
    JEL: E26 E52 E12 E61
    Date: 2020–11–03
  4. By: Rodríguez, D.; Gallego, J; Jaramillo, F.
    Abstract: This paper examines how, in the main Colombian cities, the effect of financial inclusion (FI) on income changes along the distribution of household income considering labor informality. We construct a multidimensional FI indicator based on the World Bank definition and on the data. Using a quantile regression technique, we estimate the effect of FI on income at each quantile for informal and formal households. The findings indicate that FI has a positive impact throughout the income distribution but is greater in low-income and informal households. The results suggest that FI can have potential effects in alleviating poverty and closing the income gap.
    Keywords: Financial inclusion; household income; labor informality
    JEL: D30
    Date: 2020–11–03
  5. By: Friedrich Schneider; Mangirdas Morkunas; Erika Quendler
    Abstract: This study is the first scientific attempt to calculate the size of the informal economy in agriculture. The Multiple indicators multiple causes model (MIMIC) was developed for the estimation of levels of informal economy in 15 “Old” European Union Member States’ agricultural sectors for the period of 1996-2019. The obtained results document the prevalence of higher levels of informal economy in agriculture compared to the overall economy. The impact of subsidies and farm organizations on the development of the informal economy are two important factors for these higher values in agriculture. The effects of taxation, share of import and factor income in agriculture onto the levels of the informal economy in agriculture are sizeable, too. Finally, we disaggregate the informal work into subcategories like entrepreneurial and family work.
    Keywords: informal economy, informal work, agriculture, MIMIC, EU-15 countries, causes for informal work
    JEL: Q11 Q14 Q19
    Date: 2021
  6. By: Ilona Steiler; Chediel Nyirenda
    Abstract: In spite of having some intensive national strategies to address poverty, Tanzania lacks a coherent national strategy to ensure sustainable livelihoods for those working in its informal economy, of which street vending is an important sector. Based on qualitative, in-depth data collected through interviews and participant observation between 2014 and 2019, our research scrutinizes how recent policies are improving the sustainable livelihoods of street vendors. We suggest two related foci for research and policy intervention.
    Keywords: Tanzania, Livelihoods, Informal sector, Informality, Rights, Labour rights, policy analysis
    Date: 2021
  7. By: Raouf Boucekkine (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique, UCL IRES - Institut de recherches économiques et sociales - UCL - Université Catholique de Louvain); Mohammed Laksaci (Ecole Supérieure de Banque); Mohamed Touati-Tliba (ESC Alger - ESC Alger - ESC ALGER - ESC Alger)
    Abstract: We estimate the demand for money for monetary aggregates M1 and M2, and cash in Algeria over the period 1979-2019, and study its long-run stability. We show that the transaction motive is significant for all three aggregates, especially for the demand for cash, reflecting the weight of informal economy "practices". The elasticity of the scale variable is very close to unity for M2 and M1, and even equal to unity for cash demand (1.006). The elasticity of inflation is also significant for all three aggregates, although its level is higher in the case of cash demand (-6.474). Despite the persistence of certain financial repression mechanisms, interest rate elasticity is significant for all three aggregates, but higher for M1 and cash. The same observation is made for elasticity of the exchange rate, reflecting the effect of monetary substitution, especially for M1 and cash. Finally, our study concludes that the demand for money in terms of M1 remains stable, the same observation being confirmed for the M2 aggregate. However, the demand for fiat currency proves not to be stable. The consequences for the optimal design of monetary policy in Algeria are clearly stated.
    Keywords: monetary policy,money demand,long-run stability,resource-rich countries,Algeria,co-integration
    Date: 2021–01
  8. By: Jofre-Bonet, M.; Kamara, J.; Mesnard, A.
    Abstract: Most governments cannot provide the necessary health services required for their citizens either as a result of scarcity of resources or corruption (Mostert et al., 2012). Lack of credibility and trust in fund managers has been highlighted as one of the reasons why people do not join health insurance schemes in developing countries, especially in Africa (Escobar et al., 2010). This work investigates the impact of corruption on household’s willingness to participate and pay for health insurance in the presence of corruption. To do so, we use (1) a binary logit model to study the relationship between household characteristics and experienced corruption; (2) an ordered probit model to explore how household characteristics are associated to the intensity of corruption perceived; and (3) a Mixed Logit model to estimate the association of corruption and participation and willingness to pay for a health insurance scheme. We find that corruption decreases the willingness to participate and pay for a public Health Insurance Scheme (HIS). Comparing experienced and perceived corruption, we observe that experienced corruption affects less WTP for a HIS than perceived corruption. Households experiencing corruption, are willing to pay more for a public HIS than those that perceive high levels of corruption. The implications of our findings are in line with the literature and stress the perverse spillover effects of corruption. Not only corruption hinders the effectiveness of health care systems and thus health outcomes, but it also undermines the willingness to pay for them and thus imperils the sustainability of health care systems in the countries that are most in need of them.
    Date: 2021
  9. By: Dominika Langenmayr; Lennard Zyska
    Abstract: With (automatic) exchange of tax information among countries now common, tax evaders have had to find new ways to hide their offshore holdings. One such way are citizenship-by-investment programs, which offer foreigners a new passport for a local investment or a fixed fee. We show analytically that high-income individuals acquire a new citizenship to lower the probability that their tax evasion is detected through information exchange. Using data on cross-border bank deposits, we find that deposits in tax havens increase after a country starts offering a citizenship-by-investment program, providing indirect evidence that tax evaders use these programs.
    Keywords: Citizenship-by-investment programs, tax havens, tax evasion
    JEL: H26 H24 F53 K37
    Date: 2021–03
  10. By: Giovanni D’Alessio (Banca d'Italia)
    Abstract: The paper shows the opinions on taxes of Italian citizens based on data gathered in four different national surveys between 1992 and 2013. Through a Principal Component Analysis, the study constructs a synthetic indicator of the propensity to evade, examining its intensity across various social groups and its evolution over time. The results show that the propensity to evade taxes is greater among households whose heads have low levels of education and income, are elderly and are resident in the South. Over time, the propensity to evade taxes has been growing on average, especially in the North, which has reduced the gap compared with the South, and among young people under 30 years old. The paper also shows a link between the propensity for tax evasion and some indicators of actual evasion, such as the use of cash and the under-reporting behaviour in the Survey of Household Income and Wealth (SHIW) conducted by the Bank of Italy, confirming the association between cultural elements and evasion behaviour.
    Keywords: tax evasion, social norms, social capital
    JEL: H26 A13 Z13
    Date: 2021–03
  11. By: Céline de Quatrebarbes (FERDI - Fondation pour les Etudes et Recherches sur le Développement International); Bertrand Laporte (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne); Stéphane Calipel (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne)
    Abstract: As happened in West Africa in 2008, in an imported inflation context, it is common for the governments to take short-term tax action to protect the poor: VAT or trade tariffs exemptions. As part of the tax-tariff transition, the comparison between Trade tariffs and VAT has already been the subject of much works. The introduction of VAT, as a tax on final consumption, is supposed to be optimal, due to its economically neutral aspect for production decisions. However, some authors show that in developing countries, a large informal sector affects this result. In this paper, we use a CGE model and a micro-simulation model to compare the effects of VAT and Trade tariffs exemptions to combat rising agricultural food prices.
    Keywords: computable general equilibrium model,imperfect competition,indirect taxes,poverty,Niger
    Date: 2021–03–01
  12. By: Yvon Pesqueux (ESD - Équipe Sécurité & défense - CNAM - Conservatoire National des Arts et Métiers [CNAM])
    Abstract: Ce texte est organisé de la manière suivante. Après une introduction cherchant à caractériser ce dont il s'agit et des remarques préliminaires destinées à éviter les préjugés en faisant de l'économie informelle une question sérieuse, il abordera successivement : la question du contexte, celle du passage de l'informel à l'économie informelle, un focus sur « l'épistémé des pauvres », des réflexions sur l'économie informelle puis sur l'« entrepreneur informel » (caractéristiques socioéconomiques, caractéristiques sociodémographiques, la mobilisation de leur réseau social par les « entrepreneurs informels », les motivations des « entrepreneurs informels », au-delà d'entrepreneuriat de nécessité et d'opportunité : une explication par la une approche institutionnaliste, faut-il formaliser les activités informelles ? La formalisation de l'informel) vers une théorie de l'entrepreneuriat informel (la perspective structuraliste, la perspective néolibérale, la perspective poststructuraliste), une conclusion, un focus sur la « culture d'inclusion » ou la gestion de la diversité par le principe de reconnaissance des différences : le modèle de N. M. Pless & T. Maak et un focus sur des éléments du rapport du Conseil d'orientation pour l'emploi le travail dissimulé (février 2019). 1 C. Baxerres « Pourquoi un marché informel du médicaments dans les pays francophones d'Afrique ? » Revue Politique Africaine, n° 3, 2011
    Date: 2021–02–03
  13. By: Jaramillo, F.; Ríos, C.; Salazar, M.; Tapias, J.
    Abstract: Este documento tiene como objetivo analizar los posibles determinantes de la informalidad dividiendo el análisis en siete grandes categorías (Instituciones, corrupción, costos de crear y/u operar negocios, mercados competitivos, infraestructura, educación y profundización financiera) que pueden estar afectando directa o indirectamente las definiciones de informalidad laboral, empresarial y mixta. Para lograr lo anterior, se analizará las variables más representativas por cada categoría y su correlación condicionada al PIB per cápita con las diferentes definiciones de informalidad.
    Keywords: Informalidad; instituciones
    JEL: O11 O17
    Date: 2020–11–03
  14. By: Jaramillo, F.; Ríos, C.; Salazar, M.; Tapias, J.
    Abstract: Este documento tiene como objetivo mostrar la interacción entre la informalidad y el grado de desarrollo a nivel internacional. Se muestra que existe una conexión entra la informalidad y el nivel de desarrollo, pero también se evidencia que dicha correlación nos es perfecta. Por ende, el crecimiento económico es una condición muy importante para reducir la informalidad, pero existen países con muy altos niveles de informalidad, a pesar de haber tenido un crecimiento importante.
    Keywords: Informalidad; desarrollo económico
    JEL: O11 O17
    Date: 2020–11–03
  15. By: Villacrés, Lisette; Geenen, Sara
    Abstract: Las políticas de regeneración urbana que tienen por objeto “embellecer” el espacio público, han tenido impactos disímiles, en particular en lo que respecta a la restricción del acceso al espacio público de algunos grupos considerados “indeseables” en el nuevo paisaje urbano. Este documento se concentra en uno de esos grupos, los vendedores ambulantes informales, que dependen del acceso al espacio público para generar ingresos, y a quienes se les ha prohibido o, restringido la libre circulación. En varias ciudades de América Latina, la venta ambulante es una parte muy importante de la economía informal. Presentamos el caso de Guayaquil, la segunda ciudad más poblada de Ecuador, que ha sufrido un radical proceso de regeneración urbana y gentrificación durante los cuatro mandatos del ex alcalde Jaime Nebot (2000 a 2019). Esto ha empujado a los vendedores ambulantes a zonas periféricas de la ciudad y a la informalidad, y ha provocado un conflicto permanente entre los vendedores ambulantes y las autoridades municipales. Sobre la base de un análisis del discurso y un análisis de las políticas y reglamentos nacionales y locales relativos a la venta ambulante, sostenemos que la venta ambulante se ha enmarcado, consecutivamente, como símbolo de un pasado caótico, como expresión del derecho al trabajo y como emprendedurismo. Estos discursos se tradujeron en un conjunto de políticas que en general no permiten a los vendedores ambulantes reclamar con éxito su acceso al espacio público. Por esa razón, este documento considera que el enfoque del derecho a la ciudad podría abrir más vías políticas de transformación para mejorar las demandas de los vendedores sobre el espacio público, reconociendo dos derechos: el derecho a la apropiación del espacio público y el derecho a participar en las decisiones públicas de la ciudad.
    Keywords: Ecuador; street vending; informal economy; Guayaquil;
    Date: 2021–03

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