nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2021‒04‒05
seven papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Tax Evasion at the Top of the Income Distribution: Theory and Evidence By John Guyton; Patrick Langetieg; Daniel Reck; Max Risch; Gabriel Zucman
  2. Escaping the Exchange of Information: Tax Evasion via Citizenship-by-Investment By Dominika Langenmayr; Lennard Zyska
  3. Housing Supply in the Presence of Informality By Guedes, Ricardo; Iachan, Felipe; Sant'Anna, Marcelo
  4. Earnings Inequality and Dynamics in the Presence of Informality: The Case of Brazil By Engbom, Niklas; Gonzaga, Gustavo; Moser, Christian; Olivieri, Roberta
  5. Informal employment and wages in Poland By Liwiński, Jacek
  6. La protección social de los trabajadores informales ante los impactos del COVID-19 By Velásquez Pinto, Mario D.
  7. Estudio exploratorio sobre la informalidad en la jurisdicciones provinciales By Valeria J. Blanco; A. Daniela Cristina; Iván Iturralde; Alberto J. Figueras

  1. By: John Guyton; Patrick Langetieg; Daniel Reck; Max Risch; Gabriel Zucman
    Abstract: This paper studies tax evasion at the top of the U.S. income distribution using IRS micro-data from (i) random audits, (ii) targeted enforcement activities, and (iii) operational audits. Drawing on this unique combination of data, we demonstrate empirically that random audits underestimate tax evasion at the top of the income distribution. Specifically, random audits do not capture most tax evasion through offshore accounts and pass-through businesses, both of which are quantitatively important at the top. We provide a theoretical explanation for this phenomenon, and we construct new estimates of the size and distribution of tax noncompliance in the United States. In our model, individuals can adopt a technology that would better conceal evasion at some fixed cost. Risk preferences and relatively high audit rates at the top drive the adoption of such sophisticated evasion technologies by high-income individuals. Consequently, random audits, which do not detect most sophisticated evasion, underestimate top tax evasion. After correcting for this bias, we find that unreported income as a fraction of true income rises from 7% in the bottom 50% to more than 20% in the top 1%, of which 6 percentage points correspond to undetected sophisticated evasion. Accounting for tax evasion increases the top 1% fiscal income share significantly.
    JEL: D31 H26
    Date: 2021–03
  2. 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
  3. By: Guedes, Ricardo; Iachan, Felipe; Sant'Anna, Marcelo (Fundação Getulio Vargas)
    Abstract: We study housing supply in markets where informal housing is common. Using a combination of census and satellite data, we estimate housing supply for more than 90 metropolitan areas in Brazil. We find that widespread informal housing increases the housing supply elasticity, partially offsetting the downward pressure of geographical constraints. Our empirical approach is guided by a monocentric city model that includes informal housing. Our identification strategy relies on the use of two novel instruments, combining demographic data and public land ownership. We use the supply elasticity estimates to forecast the response of future housing prices to natural population growth.
    Date: 2021–03–23
  4. By: Engbom, Niklas; Gonzaga, Gustavo; Moser, Christian; Olivieri, Roberta
    Abstract: Using a combination of rich administrative and household survey data, we document a series of new facts on earnings inequality and dynamics in a developing country with a large informal sector: Brazil. Since the mid-1990s, both inequality and volatility of earnings have declined significantly in Brazil's formal sector. Higher-order moments of the distribution of earnings innovations show similar cyclical movements in Brazil as in developed countries like the U.S. Earnings mobility is comparatively high, especially at the bottom of the distribution. Compared to the formal sector, earnings are more volatile in the informal sector. Workers who switch between sectors experience earnings innovations that have a positive mean and are positively skewed when moving to the formal sector but have a negative mean and are negatively skewed when moving to the informal sector. A secular shift of employment toward the less volatile formal sector since the early 2000s has contributed to a decline in the economy-wide volatility of earnings.
    Keywords: Earnings Inequality, Earnings Volatility, Earnings Mobility, Informality.
    JEL: D31 D33 E24 E26 J31 J46 J62
    Date: 2021–02–02
  5. By: Liwiński, Jacek
    Abstract: Purpose: This paper tries to identify the wage gap between informal and formal workers and tests for the two-tier structure of the informal labour market in Poland. Design/methodology/approach: I employ the propensity score matching (PSM) technique and use data from the Polish Labour Force Survey (LFS) for the period 2009-2017 to estimate the wage gap between informal and formal workers, both at the means and along the wage distribution. I use two definitions of informal employment: a) employment without a written agreement and b) employment while officially registered as unemployed at a labour office. In order to reduce the bias resulting from the non-random selection of individuals into informal employment, I use a rich set of control variables representing several individual characteristics. Findings: After controlling for observed heterogeneity, I find that on average informal workers earn less than formal workers, both in terms of monthly earnings and hourly wage. This result is not sensitive to the definition of informal employment used and is stable over the analysed time period (2009-2017). However, the wage penalty to informal employment is substantially higher for individuals at the bottom of the wage distribution, which supports the hypothesis of the two-tier structure of the informal labour market in Poland. Originality/value: The main contribution of this study is that it identifies the two-tier structure of the informal labour market in Poland: informal workers in the first quartile of the wage distribution and those above the first quartile appear to be in two partially different segments of the labour market.
    Keywords: informal workers,undeclared employment,wages,wage penalty,PSM
    JEL: J24 J31 J46
    Date: 2021
  6. By: Velásquez Pinto, Mario D.
    Abstract: Tanto los trabajadores como las trabajadoras informales han padecido severamente los impactos de la pandemia de enfermedad por coronavirus (COVID-19) y de las necesarias medidas destinadas a controlar la crisis sanitaria. Su situación se ha visto agudizada por su acceso deficitario a la protección social, que los pone en especial riesgo. En el marco de las respuestas implementadas por los países para proteger a la población más pobre y vulnerable de la región, se ha dirigido un conjunto de medidas a los trabajadores informales, lo que constituye una innovación en materia de política social. En este documento se analizan, en sus distintas dimensiones de diseño, las medidas adoptadas por los países para apoyar a esta población. Asimismo, a partir de las experiencias de programas implementados en crisis pasadas en algunos países, se reflexiona sobre el rol que pueden cumplir ese tipo de medidas en la inclusión laboral y la protección social de los trabajadores informales durante el período de recuperación pospandemia. Finalmente, se proponen algunas recomendaciones para el diseño de políticas, considerando su efectividad a corto, mediano y largo plazo, desde la perspectiva de la protección social.
    Date: 2021–03–30
  7. By: Valeria J. Blanco; A. Daniela Cristina; Iván Iturralde; Alberto J. Figueras
    Abstract: Nuestra historia demuestra que las diferencias regionales han sido y son muy importantes. En este ensayo trabajaremos una dimensión más bien macroeconómica; mirando a la tasa de informalidad laboral como una variable dependiente con base en los valores promedio por provincia. Para analizar sus determinantes, en la bibliografía se presentan dos visiones sobre el tema: (a) la perspectiva estructuralista; (b) y la visión institucionalista. Trabajamos un modelo econométrico con la inclusión de variables de ambas perspectivas estimado mediante GMM, encontrando que la Tasa activos sobre Inactivos, la Proporción de empresas con menos de 9 empleados, la cantidad de Empleados públicos cada 1000 habitantes y la Educación Terciaria Universitaria ejercen una influencia negativa y significativa en la tasa de informalidad, mientras que la tasa de desocupación se relaciona de manera directa con la tasa de informalidad.
    Keywords: Informalidad, laboral, estructuralista, institucionalista, Argentina
    JEL: J01 J2 O17
    Date: 2020–11

This nep-iue issue is ©2021 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.