nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2021‒09‒13
eight papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Growing Apart or Moving Together? Synchronization of Informal and Formal Economy Cycles By Ceyhun Elgin; M. Ayhan Kose; Franziska Ohnsorge; Shu Yu
  2. Understanding Informality By Ceyhun Elgin; M. Ayhan Kose; Franziska Ohnsorge; Shu Yu
  3. Education, Lack of Complementary Investment and Underemployment In an Open Economy By Sugata Marjit; Rashmi Ahuja; Abhilasha Pandey
  4. Offshore Tax Evasion and Wealth Inequality: Evidence from a Tax Amnesty in the Netherlands By Arjan Lejour; Simon Rabaté; Maarten van 't Riet; Wouter Leenders
  5. Markups in a dual labour market: the case of the Netherlands By Harro van Heuvelen; Leon Bettendorf; Gerdien Meijerink
  6. Does Informality Hinder Financial Development Convergence? Abstract: By Can Sever; Emekcan Yucel
  7. Fringe Banking and Financialisation: Pawnbroking in pre-famine and famine Ireland By Eoin McLaughlin; Rowena Pecchenino
  8. Finanzas territoriales y contrabando de cigarrillos en Colombia : una relación compleja. By Juan G. Zapata; Carlos Castañeda; Daniel Wiesner; Laura Garzón

  1. By: Ceyhun Elgin (Columbia University and Bogazici University); M. Ayhan Kose (World Bank, Prospects Group; Brookings Institution; CEPR; and CAMA); Franziska Ohnsorge (World Bank, Prospects Group; CEPR; and CAMA); Shu Yu (World Bank)
    Abstract: We study the degree of synchronization between formal- and informal-economy business cycles. Using a comprehensive database of informal activity that covers a wide range of informality measures from almost 160 countries over the 1990-2018 period, we report two major results. First, fluctuations in informal-sector output are strongly positively correlated with those in formal-sector output. In contrast, fluctuations in informal employment are largely uncorrelated with those in formal-sector output. Second, movements in the formal economy tend to spillover to the informal economy. Using a novel set of instrumental variables, we show that fluctuations in formal-sector output “cause” movements in informal-sector output.
    Keywords: Informal economy, self-employment, business cycle.
    JEL: E26 E32 J46 O17
    Date: 2021–09
  2. By: Ceyhun Elgin (Columbia University and Bogazici University); M. Ayhan Kose (World Bank, Prospects Group; Brookings Institution; CEPR; and CAMA); Franziska Ohnsorge (World Bank, Prospects Group; CEPR; and CAMA); Shu Yu (World Bank)
    Abstract: This paper introduces a comprehensive database of informal economic activity. The database focuses on measures that have strong cross-country and over time coverage: it includes both model-based and survey-based measures of informality and covers more than 160 economies for the period 1990-2018. The paper illustrates two applications of the database. First, it distills stylized facts of informal activity, including its declining trend and pervasiveness in emerging market and developing economies (EMDEs). Second, it documents the cyclical features of the informal economy. Overall, informal economy recessions (recoveries) do not differ significantly from those of formal economy. Like formal-economy business cycles, informal-economy business cycles tend to be shallower in advanced economies than in EMDEs. Informal employment in both advanced economies and EMDEs appears to be largely acyclical.
    Keywords: Informal economy, self-employment, employment, output, business cycles.
    JEL: E26 E32 J46 O17
    Date: 2021–09
  3. By: Sugata Marjit; Rashmi Ahuja; Abhilasha Pandey
    Abstract: In many developing economies rate of unemployment is increasing with skill accumulation and thereby leading to underemployment. Our paper offers to look at skill formation as a demand side problem not as a traditional supply side problem and also how skill formation or education affects unemployment among the remaining uneducated. We have developed a general equilibrium model of a small open developing economy incorporating skill formation, unemployment of unskilled labour in the formal sector and an informal sector which absorbs unemployed workers at a flexible wage rate. In this set up greater education for a group may generate educated unemployment within the group and increase unemployment of the uneducated outside the group leading to underemployment through the expansion of the informal sector. Both effects are due to shortage of complementary investment in production activities. Our theoretical findings are motivated by existing empirical evidence and a fresh empirical exercise undertaken using panel data of 32 countries.
    Keywords: skill formation, informal employment, skilled-unskilled wage inequality, underemployment
    JEL: J24 J31 E26 E24
    Date: 2021
  4. By: Arjan Lejour (CPB Netherlands Bureau for Economic Policy Analysis); Simon Rabaté (CPB Netherlands Bureau for Economic Policy Analysis); Maarten van 't Riet (CPB Netherlands Bureau for Economic Policy Analysis); Wouter Leenders (University of California, Berkeley)
    Abstract: As long as there have been taxes, people have tried to avoid and evade them. Interest in these phenomena has been fueled by the effects on public revenues, as well as on the distribution of wealth and income. One prominent example of tax evasion is the hiding of wealth and income in tax havens. According to estimates by Zucman (2013), 8% of global financial wealth, or $5.9 trillion, is held in tax havens. During the global financial crisis of the late 2000s, the G20 countries vowed to tackle offshore tax evasion and proclaimed the end of the “era of banking secrecy”. In recent years, leaks containing confidential information from financial institutions as well as academic research investigating leaks and tax amnesties have confirmed the popular narrative that tax evasion is concentrated among the wealthiest in society (Alstadsæter, Johannesen and Zucman, 2018, 2019). This does not only affect public revenues, but also the measurement of wealth and income inequality. We use unique microdata to study tax evasion in the Netherlands. We have received data on over 27,000 participants to the Dutch tax amnesty between the years 2002 and 2018. In addition, we have data on households who appeared in recent information requests to 4 different Swiss banks. We link these data to administrative data on income, wealth, and demographics covering the entire Dutch population.
    JEL: H26 H87 E21
    Date: 2020–10
  5. By: Harro van Heuvelen (CPB Netherlands Bureau for Economic Policy Analysis); Leon Bettendorf (CPB Netherlands Bureau for Economic Policy Analysis); Gerdien Meijerink (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: We follow the production function approach to assess markups, which requires the estimation of the output elasticity of a free input. In the basic setup we estimate a structural value added production function, using temporary contract hours as free input. We find rather stable markups in the Netherlands in the period 2006-2016. We show that extending the free variable incorrectly with fixed contract hours results in an increasing markup. Findings are robust to an alternative setup, in which a gross output function is specified and materials are used as free input. Implications for applied work and policy are discussed.
    JEL: J30 J31 J41 J62
    Date: 2020–02
  6. By: Can Sever; Emekcan Yucel
    Date: 2021–02
  7. By: Eoin McLaughlin (University College Cork); Rowena Pecchenino (Maynooth University)
    Abstract: Pawnbroking, one of the oldest and most accessible forms of credit, was a common feature of life in pre-famine and famine Ireland. This paper studies the role of pawnbroking in the Irish financial system during this important period, applying insights from modern studies on fringe banking to analyse pawnbroking in Ireland. In the period under study, a formal tiered financial system existed; regulated joint stock banks offered services to industry and the better off, while fringe banks provided financial services largely, but not exclusively, to unbanked groups. The main findings are that pawnbrokers provided a steady source of credit throughout the island of Ireland and that this credit stream was more durable than that provided by alternative financial service providers in the fringe banking market, especially during the famine. Our findings suggest a nuanced interpretation is needed as we find strong interrelationships between the various financial service providers.
    Keywords: Fringe banking, financialisation, pawnbroking, Ireland
    JEL: G21 G51 N23
    Date: 2021–09
  8. By: Juan G. Zapata; Carlos Castañeda; Daniel Wiesner; Laura Garzón
    Abstract: Finanzas territoriales y contrabando de cigarrillos en Colombia: una relación compleja tiene como base un estudio realizado por Fedesarrollo para British American Tobacco (BAT),sede Colombia, y se centra en discutir, validar y refutar argumentos y afirmaciones que suelen estar en el radar cuando se habla de los impuestos saludables y específicamente de los aplicados a los cigarrillos y similares. Para el caso colombiano se analiza con particular énfasis la relación de la tributación con el contrabando. El primero analiza el comportamiento de las finanzas departamentales, especialmente después de la entrada en vigor de la Ley 1819 del 2016, que contempló un fuerte incremento de los impuestos a los cigarrillos y derivados del tabaco. Este primer acápite repasa los cambios en materia tributaria de los cigarrillos en las últimas décadas y presenta la dinámica del recaudo por impuestos a los cigarrillos y tabaco en el país. Incluye, además, una estimación de la presión tributaria de estos productos y un análisis del comportamiento de las incautaciones de cigarrillos ilegales a lo largo del territorio nacional. Debe mencionarse que buena parte de lo encontrado se basa también en un trabajo cualitativo que se hizo con entrevistas semiestructuradas con funcionarios departamentales de las secretarías de Hacienda y de sus oficinas de rentas y de programas anticontrabando. El segundo pilar centra su análisis en validar o invalidar la posible incidencia del incremento en la carga tributaria a los cigarrillos en el crecimiento del contrabando en el comercio de tabaco en el país. Hay información puntual fuerte y confiable que muestra que el aumento de las incautaciones de cigarrillos puede estar relacionado con el incremento de los impuestos. Se realizaron ejercicios econométricos que evaluaron el impacto que tuvo la Ley 1819 en el comportamiento del consumo de cigarrillos ilegales en el país. Para esto último se contó con la información de Invamer de la encuesta anual que se hace para estimar el contrabando en el país. En el tercer pilar se valora un amplio grupo de trabajos que analizan la incidencia del aumento de la carga tributaria al cigarrillo en la salud. Como veremos, hay una gran dificultad para estimar esta relación, pues las metodologías que se utilizan son de muy compleja aplicación. Esto se complementó con un análisis de la información pública disponible en las Encuestas de Hogares y Calidad de Vida y de los Registros Individuales de Prestación de Servicios de Salud –RIPS– sobre el consumo de tabaco de los colombianos. Aunque limitados, los resultados son interesantes y dejan como enseñanza que si se ajustan un poco las fuentes de información disponibles en el país, será posible adelantar análisis más precisos.
    Keywords: Finanzas Territoriales, Contrabando, Cigarrillos, Finanzas Públicas, Estructura Tributaria, Consumo de Tabaco, Finanzas Públicas, Departamentales, Impuestos al Consumo, Enfermedades Asociadas al Consumo, Tabaco, Colombia
    JEL: E60 L66 H20 H30
    Date: 2021–08–30

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