nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2021‒08‒23
eight papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Welfare Effects of Unemployment Benefits When Informality Is High By Liepmann, Hannah; Pignatti, Clemente
  2. Optimum Size of the Informal Credit Market - A Political Economy Perspective By Sugata Marjit; Suryaprakash Mishra
  3. Informality and Covid-19 in sub-Sarahan Africa By Sacchetto, Camilla; Daniel, Egas; Danquah, Michael; Telli, Henry
  4. Homophily and peer influence in early-stage new venture informal investment By Qin, Fei; Mickiewicz, Tomasz; Estrin, Saul
  5. Do Collateral Sanctions Work? Evidence from the IRS’ Passport Certification and Revocation Process By Paul R. Organ; Alex Ruda; Joel Slemrod; Alex Turk
  6. Strategic or Confused Firms? Evidence from "Missing" Transactions in Uganda By Miguel Almunia; Jonas Hjort; Justine Knebelmann; Lin Tian
  7. Two sides of the same coin or two different coins? Exploring the duality of corruption in Latin America By Ella Hugo; David A. Savage; Friedrich Schneider; Benno Torgler
  8. Viselkedéstudományi projektek az adóigazgatásban 2019 By Horváth, Katalin; Keresztély, Tibor; Svraka, András; Tóth, Péter; Ván, Bálint

  1. By: Liepmann, Hannah (ILO International Labour Organization); Pignatti, Clemente (ILO International Labour Organization)
    Abstract: We analyze for the first time the welfare effects of unemployment benefits (UBs) in a context of high informality, exploiting matched administrative and survey data with individual-level information on UB receipt, formal and informal employment, wages and consumption. Using a difference-in-differences approach, we find that dismissal from a formal job causes a large drop in consumption, which is between three to six times larger than estimates for developed economies. This is generated by a permanent shift of UB recipients towards informal employment, where they earn substantially lower wages. We then exploit a kink in benefits and show that more generous UBs delay program exit through a substitution of formal with informal employment. However, the disincentive effects are small and short-lived. Because of the high insurance value and the low efficiency costs, welfare effects from increasing UBs are positive for a range of values of the coefficient of relative risk aversion.
    Keywords: unemployment benefits, welfare effects, informal employment
    JEL: J46 J65 J68
    Date: 2021–07
  2. By: Sugata Marjit; Suryaprakash Mishra
    Abstract: Informality of markets is largely perceived as undesirable. Yet, ample evidence suggests that the informal sector contributes substantially in terms of income and employment in the entire developing world. In this paper, tax evaded income is invested in the informal credit market which in turn determines demand for labor in the informal sector and hence income of informal workers. Political authority cares about lost tax revenue due to evasion but is also concerned with politically adverse consequence of lower income of informal labor due to lack of investment in the informal sector. This trade off determines an optimum size of the informal credit market and the informal economy. The size is sensitive and non–monotonic with respect to changes in the tax rate and size of the labor force, depending on the tax revenue effect of tax policy, labor demand political sensitivity of the govt. towards lower wage in the informal sector.
    Keywords: tax evasion, underreporting of income, informal credit market, political economy perspective
    JEL: D78 H25 H26 H32 I18 O17 P48
    Date: 2021
  3. By: Sacchetto, Camilla; Daniel, Egas; Danquah, Michael; Telli, Henry
    Keywords: coronavirus; Covid-19
    JEL: N0 E6
    Date: 2020–10–20
  4. By: Qin, Fei; Mickiewicz, Tomasz; Estrin, Saul
    Abstract: Conceptualising early-stage new venture informal investors as co-entrepreneurs whose actions are socially embedded, we examine the role of social influence and how it interplays with entrepreneurial experience at the individual level leading to informal investment. We extend theories of social homophily and social influence to argue that informal investment decisions are influenced by shared experience and entrepreneurism in peer groups. We test our hypotheses with a multi-level model using first a large cross-country dataset and next in depth within a country. Our analysis reveals that both individual entrepreneurship experience and peer group-embedded experience significantly influence the likelihood that an individual becomes an early-stage investor. Furthermore, these social effects substitute for the lack of individual entrepreneurial experience.
    Keywords: informal investors; entrepreneurial experience; social homophily; peer influence; entrepreneurship capital; global entrepreneurship monitor (GEM); angel investors; Springer deal
    JEL: J1 F3 G3 R14 J01
    Date: 2021–08–03
  5. By: Paul R. Organ; Alex Ruda; Joel Slemrod; Alex Turk
    Abstract: Penalties for tax evasion are typically financial, but many jurisdictions also utilize collateral sanctions that deny access to some government-provided service. To learn about the effectiveness of such penalties, we examine a U.S. policy restricting passport access for taxpayers with substantial tax debt, known as “certification.” We find an immediate and strong positive effect on compliance actions when a passport request is denied. We then take advantage of randomization during the policy rollout to identify the direct compliance effect of certification, and find smaller but non-trivial effects whose heterogeneity is consistent with measures of taxpayers’ value of having a passport.
    JEL: H2 H24 H26
    Date: 2021–07
  6. By: Miguel Almunia; Jonas Hjort; Justine Knebelmann; Lin Tian
    Abstract: Are firms sophisticated maximizers, or do they consistently make errors? Using transaction-level data from Ugandan value-added tax (VAT) returns, we show that sellers and buyers report different amounts 79% of the time, despite invoices being easily cross-checked. We estimate that 25% of firms are disadvantageous misreporters—they systematically misreport own sales and purchases such that their tax liability increases—while 75% are advantageous misreporters. Many firms—especially disadvantageous misreporters—fail to report imported inputs they themselves reported at Customs, increasing their VAT liability. On net, unilateral VAT misreporting cost Uganda about US$384 million in foregone 2013-2016 tax revenue
    JEL: D2 D9 H2 O1
    Date: 2021–07
  7. By: Ella Hugo; David A. Savage; Friedrich Schneider; Benno Torgler
    Abstract: The ambiguous phenomenon of corruption has long b een the cause of great theoretical debate in economics. By using Structural Equation Modelling, with the two types of corruption as a latent variable, this paper employs causal and indicative variables specific to the Latin American region to test for rent seeking and systemic corruption in th e period between 1980-2018. The findings provide evidence for two types of corruption, one generated by greed, and the other a solution to market failures. Such results support the view that corruption encompasses a complex set of social behaviours.
    Keywords: Rent Seeking Corruption; Systemic Corruption; Shadow Economy; Latin America
    JEL: D73 K42 O17
    Date: 2021–07
  8. By: Horváth, Katalin (Tax Policy and Research Unit, Ministry of Finance); Keresztély, Tibor (Tax Policy and Research Unit, Ministry of Finance); Svraka, András (Tax Policy and Research Unit, Ministry of Finance); Tóth, Péter (Tax Policy and Research Unit, Ministry of Finance); Ván, Bálint (Tax Policy and Research Unit, Ministry of Finance)
    Abstract: This report describes the results of sevaral field experiments using randomized controlled trials undertaken in cooperation by the Hungarian National Tax and Customs Office and the Ministry of Finance during 2019. The projects focused on improving tax compliance, and uptake tax incentives using nudges, or information provision.
    JEL: C93 D91
    Date: 2020–05

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