nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2021‒09‒27
nine papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Entrepreneurship and the Shadow (Informal) Economy By Akbal, Can
  2. Epidemics and Informality in Developing Countries By Cesar Salinas
  3. Gender identity and quality of employment By Estefanía Galván
  4. Characteristics of Firms in Botswana's Informal Economy By Tshepiso Gaetsewe
  5. Optimal income taxation with tax avoidance By Georges Casamatta
  6. Online Appendix to "An Empirical Equilibrium Model of Formal and Informal Credit Markets in Developing Countries" By Fan Wang
  7. RoSCAs in Egypt: A Banking Institution or a Commitment Device? By Rabie, Dina
  8. Aspectos macroeconómicos de la medición de la informalidad By Castrillón, C. C.; Gómez, W. A.; Montoya, J. A.
  9. Corrupción, incentivos y contrabando técnico en Colombia. 1998 – 2013 By Torres Gómez, Edwin Esteban; Argüello Cuervo, Luis Ricardo

  1. By: Akbal, Can
    Abstract: In this paper, we investigate the empirical relationship between entrepreneurship and the shadow economy size. To this end, we use cross-country data and most-frequently-used measure of the entrepreneurial activity, i.e., Global Entrepreneurship Index (GEI), as well as its subindices, and calculate correlations of these indices with the size of the informal sector and its major determinants. Our analysis indicates that there are significant correlations between the variables involved.
    Keywords: Entrepreneurship, shadow economy, cross-country data
    JEL: E00 H00
    Date: 2021–09–20
  2. By: Cesar Salinas (Indiana University)
    Abstract: Developing countries are facing the Covid-19 epidemic with particular challenges, such as their economic and labor force composition. In this research I will extend the so-called SIR-macro model with demand and supply effects to study how the size of the informal sector impact the ability of these countries to respond to the epidemic. Lockdown policies are useful to control the health crisis but these are less effective in informal markets. As a result, infection and death rates will not decrease as expected, and since informal activities are not counted in the calculation of the GDP, this would exacerbate the size of the recession. Finally, in order to generate similar results to an economy with only formal markets, the economy with informal markets has to implement more severe containment policies.
    Keywords: COVID-19, informality, recessions, SIR macro model
    Date: 2021–09
  3. By: Estefanía Galván (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía)
    Abstract: Studies for high-income countries have shown that the prescription that a man should earn more than his wife holds back women’s performance in the labour market, evidencing the importance of gender identity norms in explaining persistent gender gaps. Using data on couples in Uruguay for the period 1986-2016, this paper analyses behavioural responses to the male breadwinner norm, investigating the role of job informality as an additional mechanism of response to gender norms. My results show that the higher the probability that the wife earns more than her husband, the less likely she is to engage in a formal job, providing evidence that gender norms affect not only the quantity of labour supply (i.e. labour force participation and hours of work), but also the quality of jobs in which women are employed. Moreover, I also identify meaningful effects of the norm on men: those with lower potential earnings than their wives react to the norm by self-selecting into better-paid formal jobs. Not considering these effects would lead to underestimate the consequences of gender norms on labour market inequalities in the context of developing countries.
    Keywords: gender identity, social norms, informality, labour supply, housework.
    JEL: D13 J16 J22
    Date: 2021–08
  4. By: Tshepiso Gaetsewe (Botswana Institute for Development Policy Analysis)
    Abstract: Botswana has a large informal economy which continues to grow at a rapid rate. The Government recognises the importance of the sector in reducing unemployment and poverty. However, not much is known about informal firms in order for Government to assist in their development. The objective of this paper is to empirically identify the characteristics of the firms in Botswana’s informal economy. A binary logistic regression model is used to model the characteristics of Botswana’s informal firms, and data employed came from the 2015/16 Botswana Multi-Topic Household Survey (BMTHS). Findings indicate that informal firms in Botswana are likely to be situated in rural areas, they operate in their own households, as sole proprietors. Results further depict that, firms that did not need a loan when starting up (because business needed little capital or business was inherited) are more likely to be informal, than businesses that used household savings or sold assets to start the business. Furthermore, it was also revealed that informal firms are less likely to have small businesses and institutions as the main buyer of their goods and services, as compared to individual buyers. The paper advocates for a policy that is tailor made for the informal sector, to address the specific challenges the sector faces. Government needs to boost the business environment in rural areas, to allow for growth of firms, and create more jobs. More initiatives should be geared towards the encouragement of partnerships, as this will help individuals pool resources and ideas for sustained growth in these firms.
    Keywords: Informal economy; Registration; Logistic regression; Botswana
    Date: 2020–03
  5. By: Georges Casamatta (LISA - Lieux, Identités, eSpaces, Activités - UPP - Université Pascal Paoli - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We determine the optimal income tax schedule when individuals have the possibility of avoiding paying taxes. Considering a convex concealment cost function, we find that a subset of individuals, located in the interior of the income distribution, should be allowed to avoid taxes, provided that the marginal cost of avoiding the first euro is sufficiently small. This contrasts with the results of Grochulski (2007) who shows that, with a subadditive cost function, all individuals should declare their true income. We also provide a characterization of the optimal income tax curve.
    Date: 2021–06
  6. By: Fan Wang (University of Houston)
    Abstract: Online appendix for the Review of Economic Dynamics article
    Date: 2021
  7. By: Rabie, Dina
    Abstract: Rotating Savings and Credit Associations (RoSCAs) is a widely spread informal financial institution in developing countries. This paper examines how access to formal banking (or lack thereof), impatience and self-control are correlated with individuals' decisions to join RoSCAs. The paper employs an incentivized experiment to elicit impatience and a questionnaire to measure bank access, self-control and RoSCA participation among university employees in Cairo (Egypt). Findings indicate that access to formal banking significantly decreases the likelihood of RoSCA participation. In addition, behavioural attitudes partially (self-control but not impatience) correlates with the RoSCA participation decision. Conditional on RoSCA participation, behavioural attitudes towards self-control and impatience are significant correlates of whether an individual is a saver or a borrow in the informal institution.
    Keywords: RoSCAs,RoSCA rank,informal banking,impatience,self-control
    JEL: C91 D14 O17
    Date: 2021
  8. By: Castrillón, C. C.; Gómez, W. A.; Montoya, J. A.
    Abstract: El tamaño del sector informal es posiblemente una de las variables económicas más esquivas en su medición y polémicas en su interpretación y concepción. Si a lo anterior le sumamos los incentivos que poseen las unidades económicas de ocultar información y eludir la normatividad, nos encontramos con un hecho irrefutable: solo podríamos aproximarnos con cierto grado de precisión a una variable que es bastante difusa y que, en algunos casos, podría ser tratada a lo sumo como una variable latente. Este trabajo hace una revisión de las principales estrategias para aproximarse a la medición del sector informal, clasificando estas medidas en dos tipos: directas e indirectas. En el caso del primer tipo, las mediciones corresponden a agregaciones a partir de observaciones individuales, mientras que en el segundo tipo la informalidad es tratada como una estimación a partir de las relaciones entre diferentes variables macroeconómicas. De acuerdo a esta revisión, se puede concluir que existe una amplia heterogeneidad en las mediciones y que cada una de ellas solo permite comprender una fracción de lo que es la economía informal.
    Keywords: Economía informal; economía subterránea; mercados laborales informales; sectoresformales e informales; economía sumergida, arreglos institucionales.
    JEL: E26 J46
    Date: 2021–09–20
  9. By: Torres Gómez, Edwin Esteban; Argüello Cuervo, Luis Ricardo
    Abstract: Resumen: El contrabando técnico representa un problema para los hacedores de política económica pues tiene efectos perversos en temas fundamentales como la hacienda pública, la competencia de mercado y la informalidad. Sin embargo, a pesar de ser un problema tan importante son pocos los esfuerzos empíricos que se han hecho para estudiar los incentivos que están detrás de esta práctica ilegal, tanto a nivel global como para el caso colombiano. En este trabajo se desarrolla un modelo teórico a partir del cual se estudian los incentivos para la existencia del contrabando, y sus conclusiones se contrastan con una aplicación empírica en la que se utilizan datos de importaciones (reporte de origen y destino) de 24 sectores económicos (583 productos) provenientes de 84 países entre 1998 y 2013. Con estos datos se estima un modelo de panel de datos en el que se encuentra que hay una relación positiva entre la corrupción y el contrabando y también entre los aranceles y el contrabando técnico, indicando que se presenta una mayor subfacturación en productos que tienen aranceles altos, y provienen de países más corruptos. ABSTRACT: Technical smuggling represents a problem for economic policy makers, because it has perverse effects on fundamental issues such as public finance, market competition and informality. However, despite being such an important problem, few empirical efforts have been made to study the incentives behind this illegal practice, even at the global level, such as for the colombian case. In this paper we develop a teorethical model to study the incentives for the existence of this kind of smuggling, and its conclussions are contrasted with an empirical aplication in which we use data for imports (origin and destination reports) of 24 economic sectors (583 products) imported by Colombia from 84 countries between 1998 and 2013. With these data we estimate a panel data model in which we find a positive relationship between corruption and trade misinvoicing, and between tariffs and trade misinvoicing, indicating that there is a higher under-invoicing in products that have high tariffs and come from more corrupt countries.
    Keywords: Contrabando, Aranceles, Corrupción
    JEL: F13 F14 F19 D73
    Date: 2019–10–24

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