nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2021‒06‒14
nine papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Climate Policies and Labor Markets in Developing Countries By Noe Reidt
  2. Informality, Consumption Taxes and Redistribution By Bachas, Pierre; Gadenne, Lucie; Jensen, Anders
  3. The informal economy and gender inequalities in North Africa By Philippe Adair
  4. Welfare improving tax evasion By Canta, Chiara; Cremer, Helmuth; Gahvari, Firouz
  5. Tax Evasion, Efficiency, and Bunching in the Presence of Enforcement Notches By Daniel M. Hungerman
  6. Barriers to Growth-Enhancing Structural Transformation: The Role of Subnational Differences in Intersectoral Productivity Gaps By Paul, Saumik; Raju, Dhushyanth
  7. Digital work in Eastern Europe overview of trends, outcomes and policy responses By Aleksynska, Mariya.
  8. Women at Work in the United States Since 1860: An Analysis of Unreported Family Workers By Chiswick, Barry R.; Robinson, RaeAnn Halenda
  9. Financer l’extension de l’assurance sociale aux travailleurs de l’économie informelle à l’aide des transferts de fonds By Alexandre Kolev; Justina La

  1. By: Noe Reidt (CER–ETH – Center of Economic Research at ETH Zurich, Switzerland)
    Abstract: This paper investigates the impact of climate policies on the labor markets in developing countries characterized by a large informal economy. I conduct the analysis employing a dynamic general equilibrium model, which incorporates the three prevalent working groups in developing countries: informal self-employment, informal employment, and formal employment. To capture the mobility of workers between these groups, I use a search and match mechanism with search frictions for formal and informal firms and with on-thejob search. The model is calibrated to India to elaborate on the impact of climate policies envisioning a tax on energy with different redistribution schemes of the tax revenue. The results show that climate policies strengthening the position of the productive formal sector can lead to a triple dividend effect: emissions drop due to the energy tax, whereas the redistribution scheme increases the formal labor share and welfare. Developing countries with widespread informality can utilize climate policies to improve labor conditions while reaching their climate targets.
    Keywords: development, climate policies, employment, search frictions, informality
    JEL: C68 E26 J46 J64 Q56
    Date: 2021–05
  2. By: Bachas, Pierre; Gadenne, Lucie; Jensen, Anders
    Abstract: Can consumption taxes reduce inequality in developing countries? We combine household expenditure data from 31 countries with theory to shed new light on the redistributive potential and optimal design of consumption taxes. We use the type of store in which purchases occur to proxy for informal (untaxed) consumption. This enables us to characterize the informality Engel curve: we find that the budget share spent in the informal sector steeply declines with income, in all countries. The informal sector thus makes consumption taxes progressive: households in the richest quintile face an effective tax rate that is twice that of the poorest quintile. We extend the standard optimal commodity tax model to allow for informal consumption and calibrate it to the data to study the effects of different tax policies on inequality. Contrary to consensus, we show that consumption taxes are redistributive, lowering inequality by as much as personal income taxes. Once informality is taken into account, commonly used redistributive policies, such as reduced tax rates on necessities, have a limited impact on inequality. In particular, subsidizing food cannot be justified on equity or efficiency grounds in several poor countries.
    Keywords: Household Budget Surveys; inequality; Informality; redistribution; taxes
    JEL: E26 H21 H23 O23
    Date: 2020–06
  3. By: Philippe Adair
    Date: 2021
  4. By: Canta, Chiara; Cremer, Helmuth; Gahvari, Firouz
    Abstract: We study optimal income taxation in a framework where one's willingness to report his income truthfully is positively correlated with his type. We show that allowing low-productivity types to cheat leads to Pareto-superior outcomes as compared to deterring them, even if audits can be performed costlessly. When there is no cheating, redistribution takes place on first- and second-best frontiers and can never make low-ability types more well-off than high-ability types. Letting low-ability types cheat allows first-best redistribution up to a limit at which low-ability types are better off than high-ability types.
    Keywords: audits; optimal taxation; tax evasion; welfare-improving
    JEL: H20 H21 H26
    Date: 2020–07
  5. By: Daniel M. Hungerman
    Abstract: A recent literature has studied bunching at notches in tax systems; but work on the implications of bunching for welfare has been limited. We consider a setting where there are discrete changes in the enforcement of tax compliance at certain levels of reported income, creating notches that can lead to bunching. We find that greater levels of bunching can be associated with greater tax efficiency. A simulation exercise demonstrates that notches with greater bunching can be associated with higher welfare than notches with less bunching, and that a tax system with bunching at a notch can generate higher overall social welfare than a revenue-equivalent no-evasion linear tax.
    JEL: H21 H26
    Date: 2021–05
  6. By: Paul, Saumik (Newcastle University); Raju, Dhushyanth (World Bank)
    Abstract: The movement of workers from the farm sector to a more productive nonfarm sector has failed to generate significant gains in labor productivity in recent decades in many developing countries. This paper offers a new perspective into the barriers to growth-enhancing structural transformation, combining structural modeling with enterprise census data from Ghana. We argue that subnational differences in the intersectoral productivity gap between the nonfarm informal and formal sectors constrain the productivity gain from structural transformation. In Ghana, intersectoral productivity gaps among the richer regions are on average three times larger than among the poorer regions. We model the disparity in regional intersectoral productivity gaps as reflecting the disparity in the regional misallocation of labor between the informal and formal sectors and identify misallocation as the output wedge between the informal and formal sectors. Simulations suggest that a more productive nonfarm informal sector reduces the disparity in regional intersectoral productivity gaps and, in turn, increases national productivity and the contribution of structural transformation to national productivity. For example, a 90-percent reduction in the disparity in regional intersectoral productivity gaps raises Ghana's national aggregate productivity by 11.9 percent and the contribution of structural transformation to productivity by 19.7 percent.
    Keywords: structural transformation, misallocation of resources, labor productivity, nonfarm enterprises, subnational regions, informal and formal sectors, Ghana
    JEL: D24 F15 F43 N10 O11 O14 O47
    Date: 2021–06
  7. By: Aleksynska, Mariya.
    Abstract: This paper documents the emergence and growth of digital labour markets in Eastern Europe. It shows that the development of two types of digital work – online work through online labour platforms and offline work mediated by mobile apps – have a different history, root causes and dynamics. While both are enabled by digital technologies, each attracts a different worker profile and results in different outcomes for work- ers. The paper also reviews policy responses to digital work in three areas: bringing digital work under the scope of existing regulations; ensuring fair competition with workers in traditional forms of employment; and improving formalization and better tax compliance of digital workers. It concludes by discussing how low scope for organizing digital workers, poor law enforcement and proliferation of new modes of digital work remain key obstacles for effective regulation.
    Date: 2021
  8. By: Chiswick, Barry R.; Robinson, RaeAnn Halenda
    Abstract: Estimated labor force participation rates among free women in the pre-Civil War period were exceedingly low. This is due, in part, to cultural or societal expectations of the role of women and the lack of thorough enumeration by Census takers. This paper develops an augmented labor force participation rate for free women in 1860 and compares it with the augmented rate for 1920 and today. Our methodology identifies women who are likely providing informal and unenumerated labor for market production in support of a family business, that is, unreported family workers. These individuals are not coded in the original data as formally working, but are likely to be engaged in the labor force on the basis of the self-employment of other relatives in their household. Unreported family workers are classified into four categories: farm, merchant, craft, and boardinghouse keepers. Using microdata, the inclusion of these workers more than triples the free female labor force participation rate in the 1860 Census from 16 percent to 57 percent, more than doubles the participation rate in the 1920 Census from 24 percent to 50 percent, and has a trivial effect on the currently measured rate of 56 percent (2015-2019 American Community Survey). This suggests that rather than a steep rise from a very low level in the female labor force participation rate since 1860, it has in fact always been high and fairly stable over time. In contrast, the effect of including unreported family workers in the male augmented labor force participation rate is relatively small.
    Keywords: Women,Labor Force Participation,Unreported Family Workers,Occupational Status,Unpaid Workers,Self-Employment,1860 Census,1920 Census,American Community Survey
    JEL: N31 J16 J21 J82
    Date: 2021
  9. By: Alexandre Kolev; Justina La
    Abstract: L'emploi informel, défini par l'absence de protection sociale basée sur l'emploi, constitue la majeure partie de l'emploi dans les pays en développement, et entraîne un niveau de vulnérabilité à la pauvreté et à d'autres risques qui sont supportés par tous ceux qui dépendent des revenus du travail informel. Les résultats de la base de données des Indicateurs clés de l’informalité en fonction des individus et leurs ménages (KIIbIH) montrent qu'un nombre disproportionné de travailleurs de l'économie informelle de la classe moyenne reçoivent des transferts de fonds. Ces résultats confirment que les stratégies de gestion des risques, telles que la migration, jouent un rôle dans la minimisation des risques potentiels du travail informel pour les ménages informels de la classe moyenne qui peuvent ne pas être éligibles à l'aide sociale. Ils suggèrent en outre que les travailleurs informels de classe moyenne peuvent avoir une demande solvable d'assurance sociale, de sorte que, si des régimes d'assurance sociale adaptés aux besoins des travailleurs informels leur étaient accessibles, les transferts de fonds pourraient potentiellement être canalisés pour financer l'extension de l'assurance sociale à l'économie informelle.
    Keywords: développement, migration, mutualisation des risques, transferts de fonds, travailleurs de la classe moyenne, travailleurs informels, travailleurs émigrés, épargne
    JEL: E26 F22 F24 G52 H55 I38
    Date: 2021–06–10

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