nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2021‒10‒04
seven papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. What we pay in the shadow: Labor tax evasion, minimum wage hike and employment By Nicolas Gavoille; Anna Zasova
  2. The epidemiology of tax avoidance narratives By Lorenz, Johannes; Diller, Markus; Sureth, Caren
  3. Education-occupation mismatch in the context of informality and development By Mariya Aleksynska; Alexandre Kolev
  4. Informality, innovation, and knowledge co-creation: characterising collaborative creativity and adaptation in rural development By Tasker, Alex
  5. Breadth and sufficiency of Cash Transfer Responses in Ten Latin American Countries during the First 12 Months of the COVID-19 Pandemic By Merike Blofield; Cecilia Giambruno; Jennifer Pribble
  7. Formal insurance and altruism networks By Tizié Bene; Yann Bramoullé; Frédéric Deroïan

  1. By: Nicolas Gavoille; Anna Zasova
    Abstract: The interactions between minimum wage policy and tax evasion remain largely unknown. We study firm-level employment effects of a large and biting minimum wage increase in Latvia conditional on labor tax compliance. The Latvian labor market is characterized by the prevalence of envelope wages, i.e. unreported cash-in-hand complements to the official wage. We apply machine learning to classify firms between compliant and tax-evading using a unique combination of administrative and survey data. We then show that firms engaged in labor tax evasion are insensitive to the minimum wage shock. Our results suggest that these firms use wage underreporting as an adjustment margin, converting (part of) the envelope into legal wage. Increasing minimum wage contributes to tax rule enforcement, but this comes at the cost of negative employment consequences for compliant firms.
    Keywords: Minimum wage; Employment; Tax evasion
    JEL: J08 H26 E26
    Date: 2021–09–21
  2. By: Lorenz, Johannes; Diller, Markus; Sureth, Caren
    Abstract: This study investigates the contagious nature of tax avoidance by examining how narratives affect tax avoiding behavior. We adapt the idea of narrative economics indicating that individuals' actions are stimulated by stories that spread within a society. We employ two types of infection models to theoretically investigate how tax avoidance schemes spread over time and vanish eventually consistent with patterns known from epidemiology. We find that general tax avoidance can persist even if its expected outcome is negative, while specific tax avoidance schemes might vanish even though their expected outcome is positive. We find empirical support for the predicted dissemination of narratives related to both general and specific tax avoidance schemes in google n-grams. Finally, we show that dissemination of specific tax avoidance schemes is attenuated by anti-narratives in (social) media. Our findings help to understand how tax avoidance spreads, under what conditions anti-avoidance measures can effectively curb tax avoidance and point towards the crucial role of transparency of enhanced enforcement by visible narratives.
    Keywords: tax avoidance,tax evasion,epidemiology,contagion,SIS-model,SIR-model,n-grams
    JEL: H26 C73 K34
    Date: 2021
  3. By: Mariya Aleksynska; Alexandre Kolev
    Abstract: Using household data from 15 countries in Latin America and Africa, this paper explores linkages between informality and education-occupation matching. The paper applies a unified methodology to measuring education-occupation mismatches and informality, consistently with the international labour and statistical standards in this area. The results suggest that in the majority of low- and middle-income developing countries with available data, workers in informal jobs have higher odds of being undereducated as compared to workers in formal jobs. Workers in formal jobs, in contrast, have higher chances of being overeducated. These results are consistent for dependent as well as for independent workers. They also hold for men and for women according to the gender-disaggregated analysis. Moreover, in the majority of countries considered in this paper, the matching-informality nexus is also related to the extent of informality in a given area: in labour markets with higher informality, informal workers in particular have a higher chance of being undereducated. The paper discusses policy implications of these findings. Ce document de travail analyse les liens entre l’emploi informel et l’inadéquation entre niveaux de formation et emploi à partir des données d’enquêtes de ménages qui couvrent 15 pays d’Amérique latine et d’Afrique. Il s’appuie sur une méthodologie unifiée pour mesurer l'inadéquation formation-emploi et l'informalité, conformément aux normes internationales du travail et des statistiques dans ce domaine. Les résultats suggèrent que dans la majorité des pays en développement à revenu faible et intermédiaire pour lesquels des données sont disponibles, les travailleurs occupant des emplois informels ont une probabilité plus élevée d'être sous-éduqués que les travailleurs occupant des emplois formels. Ceux-ci ont, a contrario, plus de chances d'être sur-éduqués. Ces résultats sont cohérents tant pour les travailleurs salariés que pour les travailleurs indépendants. Selon l’analyse ventilée par sexe, ils sont également valables pour les hommes comme pour les femmes. De plus, dans la majorité des pays considérés dans ce document, le lien entre l’inadéquation formation-emploi et l'informalité est également lié à l'étendue de l'informalité dans une région donnée : sur les marchés du travail où l'informalité est plus élevée, les travailleurs informels en particulier ont plus de probabilités d'être sous-qualifiés. Le document examine les implications de ces résultats pour les politiques publiques.
    Keywords: developing country, informal employment, occupational mismatch, over-qualification, overeducation
    JEL: E24 E26 I21 J24
    Date: 2021–10–04
  4. By: Tasker, Alex
    Abstract: This article characterises informal knowledge creation and co-creation between development and pastoralist actors, drawing on qualitative data gathered during an in-depth case study in Northern Kenya. Using thematic analysis, this article identifies three intersecting narratives: knowledge and exchange, barriers and drivers, and risk and uncertainty. These concepts are interpreted using wider literature on knowledge dynamics and co-creation to evaluate the suitability of existing analytical frameworks for further research on pastoralist development. The study results highlight the value of cross-cultural informal knowledge co-creation for pastoralist development, and the need for more robust future research.
    Date: 2021–09–18
  5. By: Merike Blofield; Cecilia Giambruno; Jennifer Pribble
    Abstract: Given the devastating health and economic effects of the COVID-19 pandemic in Latin America, social protection responses have been crucial for safeguarding access to basic needs among vulnerable households. Yet policy design has varied widely across countries. In this working paper, we develop comparative measures to assess the breadth and sufficiency of the cash transfer responses of ten Latin American countries (Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Ecuador, Mexico, Peru and Uruguay) during the first twelve months of the pandemic, from April 2020 to March 2021. We assess it for two particularly vulnerable groups: children in existing cash transfer programs, and informal workers and households in new emergency programs. Four broad types of responses emerge, detailed in Figures 1-4: the first group -Brazil and Chile- provided benefits with relatively high breadth and sufficiency. The second group -Argentina, Costa Rica, Uruguay, Peru and Bolivia- is more heterogeneous, but shares the characteristics of high breadth of benefits. Sufficiency of benefits varies from medium to low sufficiency, often with differences between programs. The third group - Colombia and Ecuador- is characterized both by low breadth and low sufficiency of benefits. The fourth type of response is a non-response, ie., no national-level pandemic cash transfer response, and comprises Mexico.
    Keywords: COVID-19, social protection, children, informal workers, poverty, Latin America
    JEL: I30 I31 I32 I38 I39
    Date: 2021–09
  6. By: Kar, Saibal; Lahiri, Sweta
    Abstract: The impact of macroeconomic shocks, viz. rise in oil price on the sub-national wages of unorganized sector workers is little discussed in the literature. This paper uses three rounds of unit level data to show that moving from formal to informal facilities in the large transport sector in India is generally penalizing for the workers, albeit, higher educational qualification of the individual helps to raise real wages. Rise in oil price may lead to contraction of the informal transport sector owing to direct pass-through effects with varied sub-national welfare impact. Additionally, labor market reforms may increase wage of informal workers in the event of oil price shocks.
    Keywords: Oil price; informal sector; regional transport; district fixed effects; India.
    JEL: F6 O1
    Date: 2021–05–05
  7. By: Tizié Bene (Aix-Marseille Univ, CNRS, AMSE, Marseille, France); Yann Bramoullé (Aix-Marseille Univ, CNRS, AMSE, Marseille, France); Frédéric Deroïan (Aix-Marseille Univ, CNRS, AMSE, Marseille, France)
    Abstract: We study how altruism networks affect the adoption of formal insurance. Agents have private CARA utilities and are embedded in a network of altruistic relationships. Incomes are subject to both a common shock and a large idiosyncratic shock. Agents can adopt formal insurance to cover the common shock. We show that ex-post altruistic transfers induce interdependence in ex-ante adoption decisions. We characterize the Nash equilibria of the insurance adoption game. We show that adoption decisions are substitutes and that the number of adopters is unique in equilibrium. The demand for formal insurance is lower with altruism than without at low prices, but higher at high prices. Remarkably, individual incentives are aligned with social welfare. We extend our analysis to CRRA utilities and to a fixed utility cost of adoption.
    Keywords: formal insurance, informal transfers, altruism networks
    JEL: C72 D85
    Date: 2021–09

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