nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2021‒09‒20
five papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Why Minimum Corporate Income Taxation Can Make the High-Tax Countries Worse off: the Compliance Dilemma By Hindriks, Jean; Nishimura, Yukihiro
  2. Infrastructure Accumulation in Developing Countries: the Role of the Informal Sector By W. Addessi; M. Delogu
  3. Does Whistleblowing on Tax Evaders Reduce Ingroup Cooperation? By Philipp Chapkovski; Luca Corazzini; Valeria Maggian
  4. Empowerment of Rural Young People in Informal Farm Entrepreneurship: The Role of Corporate Social Responsibility in Nigeria’s Oil Producing Communities By Joseph I. Uduji; Elda N. Okolo-Obasi
  5. Staying afloat in the milk business: Borrowing and selling on credit among informal milk vendors in Nairobi By Myers, Emily; Heckert, Jessica; Galiè, Alessandra; Njiru, Nelly; Alonso, Silvia

  1. By: Hindriks, Jean (Université catholique de Louvain, LIDAM/CORE, Belgium); Nishimura, Yukihiro (Osaka University)
    Abstract: Minimum taxation means that if a multinational enterprise (MNE) declares its operations in a jurisdiction taxing less than the minimum tax, the countries where the real economic activity takes place would have the right to tax the difference. There is a revival of the minimum tax standard for two reasons. First, there is concern about the complexity of assigning taxing rights and the effectiveness of profit-splitting rules in eliminating profit shifting. Second, the minimum tax standard has the merit of tackling multinational tax avoidance at its root. However, this argument ignores the strategic interaction between minimum taxation and tax compliance. Building upon Hindriks and Nishimura (2021), we develop a framework in which effective international tax compliance requires enforcement coordination between countries (e.g. exchange of information). We show that under sufficient market asymmetry (translating into the tax differential), minimum taxation may induce the low-tax countries to withdraw from international tax compliance agreements. We then show that such a breakdown of cooperation can make the high-tax country worse off compared to the absence of minimum taxation.
    Keywords: profit shifting ; tax competition ; tax enforcement
    JEL: C72 F23 F68 H25 H87
    Date: 2021–07–28
  2. By: W. Addessi; M. Delogu
    Abstract: In this paper, we study the optimal labor income taxation to finance infrastructure in developing countries characterized by high informality. We show that the presence of labor market segmentation, induced by a binding minimum wage, affects the optimal level of taxation/infrastructure and influences how the economy reacts to policy changes in terms of both the size of the informal sector and the income distribution among high- and low- skilled workers.
    Keywords: Infrastructure;Informality;Optimal Taxation;Development
    Date: 2021
  3. By: Philipp Chapkovski (National Research University Higher School of Economics, Russian Federation); Luca Corazzini (Department of Economics, University Of Venice CÃ Foscari); Valeria Maggian (Department of Economics, University Of Venice CÃ Foscari)
    Abstract: Whistleblowing is a powerful and rather inexpensive instrument to contrast tax evasion. Despite the deterrent effects on tax evasion, whistleblowing can reduce trust and undermine agents’ attitude to cooperate with group members. Yet, no study has investigated the potential spillover effects of whistleblowing on ingroup cooperation. This paper reports results of a laboratory experiment in which subjects participate in two consecutive phases in unchanging groups: a tax evasion game, followed by a generalized gift exchange game. Two dimensions are manipulated in our experiment: the inclusion of a whistleblowing stage in which, after observing others’ declared incomes, subjects can signal other group members to the tax authority, and the provision of information about the content of the second phase before the tax evasion game is played. Our results show that whistleblowing is effective in both curbing tax evasion and improving the precision of tax auditing. Moreover, we detect no statistically significant spillover effects of whistleblowing on ingroup cooperation in the subsequent generalized gift exchange game, with this result being unaffected by the provision of information about the experimental task in the second phase. Finally, the provision of information does not significantly alter subjects’ (tax and whistleblowing) choices in the tax evasion game: thus, knowledge about perspective ingroup cooperation did not alter attitude towards whistleblowing.
    Keywords: Tax evasion, whistleblowing, ingroup cooperation, spillover effects, laboratory experiment
    JEL: H26 C90 D02
    Date: 2021
  4. By: Joseph I. Uduji (University of Nigeria, Nsukka, Nigeria); Elda N. Okolo-Obasi (University of Nigeria, Nsukka, Nigeria)
    Abstract: Purpose – The purpose of this paper is to critically examine the corporate social responsibility initiatives of multinational oil companies in Nigeria. Its main focus is to investigate the impact of the global memorandum of understanding (GMoU) on equipping the rural young people with essential farming skills and knowledge for adoption and application of modern agricultural inputs in the Niger Delta region. Design/methodology/approach – This paper adopts a survey research technique, aimed at gathering information from a representative sample of the population, as it is essentially cross-sectional, describing and interpreting the current situation. A total of 800 rural young people were sampled across the oil producing region. Findings – The results from the use of combined propensity score matching and logit model indicate that the GMoU model has a significant impact on development of informal farm entrepreneurship generally, but somewhat undermined rural young people in the targeted agricultural clusters. Practical implications – This suggests that youth-specific CSR farm projects can be effective in providing young people with the extra push needed to tackle the knowledge gap and poor agronomic that erect the below-per yield and lack of competitiveness of small-holder farmers in the region. Social implications – It implies that a coherent and integrated CSR response from business would be necessary to unlock investment opportunities on young people in farms for agricultural competitiveness and food security in Africa. Originality/value – This research adds to the literature on informal farm entrepreneurship and rural communities’ debate in sub-Saharan Africa. It concludes that business has obligation to help in solving problems of youth unemployment in developing countries.
    Keywords: Global memorandum of understanding (GMoU), Rural young people, Informal farm entrepreneurship, sub-Saharan Africa
    Date: 2021–01
  5. By: Myers, Emily; Heckert, Jessica; Galiè, Alessandra; Njiru, Nelly; Alonso, Silvia
    Abstract: Studies on credit schemes for small-scale entrepreneurs have documented their potential to alleviate poverty and improve food security, nutrition, and health outcomes in low- and middle-income countries. Other studies find mixed impacts of credit schemes on reducing income inequality, empowering women, and enhancing children’s education. Moreover, growing evidence finds that entrepreneurs offer credit to customers; little is known about what this practice means for entrepreneurs, and even less about gendered differences in this practice. Herein, we consider the case of final retailers in agricultural value chains and examine how male and female informal milk vendors from peri-urban Nairobi borrow and sell on credit, and how these experiences affect their businesses where there are few formal safeguards to ensure repayment. In 2017, we conducted 49 individual interviews, four key informant interviews, and six focus groups with men and women who were current or former milk vendors. A thematic analysis revealed that vendors sell on credit to appeal to customers, which may be advantageous when vendors need to rid themselves of milk before it spoils, regardless of gender. With few strategies to recoup costs from customers who fail to repay, however, failure to collect debt may cause default for vendors who acquired milk via informal borrowing. The consequences are likely more severe for women vendors, who generally have less capital to fall back on relative to men. Development organizations should identify gender-sensitive financial services that can help entrepreneurs maintain viable businesses despite the volatility of borrowing and selling on credit.
    Keywords: KENYA; EAST AFRICA; AFRICA SOUTH OF SAHARA; AFRICA; milk production; enterprises; credit; microenterprises; gender; agricultural value chains; informal sector; qualitative analysis
    Date: 2021

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